Maintaining good voltage regulation and achieving fast dynamic response under sudden load fluctuation are extremely important in distributed generation (DG) as well as uninterrupted power supply (UPS) systems. This paper presents a fixed frequency hysteresis current (FFHC) controller, which is implemented on the basis of sliding mode control (SMC) technique and fixed frequency current controller with a hysteresis band. The controller retains the benefit of hysteretic current control having fast dynamic responses and mitigates the drawback of the variable switching frequency. These have been verified and compared with the carrier based pulse width modulated (PWM) voltage controller under the same load fluctuation. The proposed method is then applied to 6-KVA, 220V, 50Hz islanded 1-Φ voltage source inverter (VSI) system. The results show that the dynamic response is quite faster than that of widely used PWM-controlled inverter systems. Moreover, the total harmonic distortion (THD) of inverter output voltage is 2.14% at standard nonlinear load IEC62040-3.