One of the most important concerns in the power system study of present era is power quality improvement. It becomes important now due to the introduction of various industrial devices and sensitive loads. The main issues lying with power quality are voltage sags and swells at the distribution side. There are many different methods available to mitigate voltage sags and swells; one of the most popular methods is DVR (Dynamic Voltage Restorer). The DVR is a series compensating device, which is mainly useful in low voltage and medium voltage application. The new configuration of DVR has been proposed using PI-controller, which compensates voltage sags and swells during a three phase fault. Simulation results are carried out with MATLAB/SIMULINK to verify the performance of the proposed model.