In this paper, a new reference waveform estimation strategy based on an adaptive notch filter (ANF) is proposed for unified power quality conditioner (UPQC). Two coupled ANFs are used to generate the reference waveforms for shunt and series components of UPQC. Mathematical properties of proposed algorithm are presented in detail. The technique is simple and its speed and accuracy are controllable. Moreover, robustness against internal parameter variations is a feature of this method. Numerical simulations result show the superiority of the algorithm for compensation of voltage and current distortions in compare with the conventional methods.