This paper proposes a dual-functional distribution static compensator (DSTATCOM) with flexible mode transfer between current control mode (CCM) and voltage control mode (VCM). The DSTATCOM operates in CCM within a range of load voltage to provide load balancing, power factor correction, and load harmonic elimination. In the VCM, the DSTATCOM regulates load voltage at a reference value to protect sensitive loads from voltage disturbances. A control algorithm has been proposed to obtain the appropriate range of source voltage for which DSTATCOM operates in CCM. Outside this voltage range, DSTATCOM operates in VCM. The proposed algorithm with the dual-functional DSTATCOM exhibit various operational characteristics such that 1) source currents are balanced, sinusoidal, and in phase with respective phase load voltages for a defined range of source voltage; 2) load harmonic and reactive current components are always supplied by the compensator; and 3) load voltage is maintained at a constant voltage during voltage disturbance for protection of sensitive loads. Simulation results are provided to demonstrate the performance of the proposed algorithm and dual-functional DSTATCOM.