This paper presents the performance comparison of two different controlling algorithms for a three-leg Voltage Source Converter (VSC) based Distribution STATic COMpensator (DSTATCOM) applied to an isolated system. This is proposed for reactive power compensation, total harmonic reduction, unbalanced load current compensation and power factor improvement of a Diesel Generator (DG) set in the distribution system. Since, the DG set isolated from the distribution system which is used in practice to feed the power to nonlinear power electronics load mostly in office and remote areas. The nature of non-linear load is to cause distortion in the source voltage and current. Due to these distortions, there will be an increase in fuel consumption and the life of the DG set will be reduced. To eliminate these problems, the controlling algorithms have been proposed which is used to generate the reference currents for a DSTATCOM. The controlling algorithms used are IcosΦ and controller. The proposed system is simulated under MATLAB environment using simulink and Power System Blockset (PSB) toolboxes.