This paper proposes a dual three-leg voltage source inverter (VSI) based distribution static compensator (DSTAT-COM) to compensate unbalanced and nonlinear loads in three-phase four-wire distribution systems. The proposed topology uses two three-leg inverters having common dc-link with single dc capacitor and an additional small capacitor connected from the negative terminal of VSI to the system neutral. The proposed scheme with associated control algorithm has the capability to compensate unbalanced nonlinear load and hence makes source current as balanced sinusoidal and at desired power factor. The control algorithm also ensures the proper sharing of reactive, harmonics and unbalance powers between two VSIs and controls the grid current total harmonic distortion (THD) level. The performance of the proposed scheme has been verified using simulation and experimental studies and results are presented.