The protection of the sensitive unbalanced nonlinear loads from sag/swell, distortion, and unbalance in supply voltage is achieved economically using the dynamic voltage restorer (DVR). A simple generalized algorithm based on basic synchronous-reference-frame theory has been developed for the generation of instantaneous reference compensating voltages for controlling a DVR. This novel algorithm makes use of the fundamental positive-sequence phase voltages extracted by sensing only two unbalanced and/or distorted line voltages. The algorithm is general enough to handle linear as well as nonlinear loads. The compensating voltages when injected in series with a distribution feeder by three single-phase H-bridge voltage-source converters with a constant switching frequency hysteresis band voltage controller tightly regulate the voltage at the load terminals against any power quality problems on the source side. A capacitor-supported DVR does not need any active power during steady-state operation because the injected voltage is in quadrature with the feeder current. The proposed control strategy is validated through extensive simulation and real-time experimental studies.