In recent years, a rapid decrease in the cost of various energy storage technologies and their integration into grid becomes a reality with the advent of smart grid. The Dynamic Voltage Restorer (DVR) is a custom power device that has an excellent dynamic capability used to provide voltage sag, swell compensation in distribution systems. Among the energy storage devices, Ultra-Capacitors (UCAP) have ideal characteristics such as high power and low energy density essential for the compensation of voltage sag and swell, which require high power for short interval of time. This paper presents an integration of rechargeable UCAP with DVR. This UCAP-DVR presents a modular, flexible system configuration that will have an active power capability and also provide deep, extended mitigation for power quality problems. The DVR is integrated into UCAP via bidirectional DC-DC converter which supports a rigid dc-link voltage for DVR and also helps in compensating temporary voltage sag and swell. FUZZY LOGIC Controller is used to enhance the performance of UCAP-DVR. The simulation model for the proposed system has been developed in MAT-LAB and the performance over conventional DVR is compared with the results obtained.