Power quality is one of major concerns in the present era. It has become important, especially, with the introduction of sophisticated devices, whose performance is very sensitive to the quality of power supply. Power quality problem is an occurrence manifested as a nonstandard voltage, current or frequency that results in a failure of end use equipment. One of the major problems dealt here is the voltage sag. Voltage sag is the one of the power quality problems in the distribution system & it is characterized by its magnitude, duration & phase angle jump which gets affected by the variations in the distribution system parameters.In the thesis various VSI topologies are suggested to design the compensator to mitigate voltage sag. In this project the comprehensive analysis of voltage sag has been done & the effect of various power system parameters on voltage sag has been observed. Further using conventional 2-level inverter, 3-level and 5-level cascaded inverter based Dynamic Voltage Restorer (DVR) is implemented for sag compensation and by increased number of level of cascaded multilevel inverter based DVR the harmonic contribution has been reduced.