This paper presents a new control method to compensate source voltage and load current harmonics and improvement of power quality problems through a three-phase unified power quality conditioner (UPQC). The UPQC system consists of combined operation of series and shunt active power filters sharing a common DC link. Paralel Active Power Filter (PAF) used for current harmonics, unbalanced and neutral current compensation; Series Active Power Filter (SAF) used for compensation of source voltage harmonics, unbalanced voltage and sag and swell of source voltage. The performance of the proposed control system was analyzed using simulations with Matlab/Simulink program, and experimental results with the hardware prototype. The proposed UPQC control algorithm can improve the power quality at the point of common coupling (PCC) on power distribution system.