In this paper, a distribution static compensator (DSTATCOM) is implemented for controlling a distributed power generating system using a proposed composite observer based control technique. The proposed control technique is employed for the fundamental components extraction of distorted load currents. These extracted components are used in the estimation of reference source currents to generate gating signals of DSTATCOM. The proposed control technique is implemented for the mitigation of reactive power, distortion in term of harmonics, and load balancing under linear/nonlinear loads. The performance of DSTATCOM is observed satisfactory for these consumer loads with regulated generator voltage at point of common coupling and self-supported dc link of voltage-source converter of DSTATCOM.