This paper describes a new control approach called Adaptive linear neuron (ADALINE) based Least mean square (LMS) algorithm used in a three phase four wire (3P4W) distribution system under single phase fault condition. Three phase reference supply currents are generated by using the proposed control technique thereafter they compared with the corresponding sensed supply currents to produce switching pulses for the IGBTs of a four leg voltage source converter (4-leg VSC) based distribution static compensator (DSTATCOM). In this paper, the DSTATCOM is used for voltage regulation, power factor correction and elimination of distorted/unbalanced source current & excessive neutral current in the system. MATLAB/SimPowerSystem environment is used to simulate the distribution system under both fault and without fault conditions.