An adaptive control technique has been implemented for DSTATCOM for power quality enhancement in three phase four wires(3P4W) distribution system. The reference source currents are extracted from active components of load current for each phase by using this technique. It has also been used for load balancing, harmonic suppression, power factor improvement and reactive power compensation in distribution system. The adaptive control technique has been tested at varying load in steady state and dynamic conditions. This technique is developed using MATLAB/Simulink and source side harmonics are mitigated under different load conditions which are acceptable in accordance with IEEE standard.