This paper presents a comparative performance evaluation of voltage source inverter (VSI) as well as current source inverter (CSI) based DSTATCOM systems in terms of power quality improvement in a three-phase four-wire distribution network. Due to increasing use of high-performance semiconductor based power electronic switches, the CSI based DSTATCOM is developed as a suitable option in high power applications. However, the VSI based DSTATCOM system is the best suited for medium power applications. The VSI based DSTATCOM offers advantages over the CSI based DSTATCOM in terms of current harmonic compensation, power factor correction, lower losses (both conduction and power losses), and simplicity in both power and control circuits. The control strategies of both the DSTATCOM systems are based on conventional PI and synchronous reference frame (SRF) theory. The performance of the VSI and CSI based DSTATCOM systems is tested under unbalanced and nonlinear load conditions. Analytical expectations of complete DSTATCOM systems are verified using simulations in the MATLAB/Simulink environment.