Voltage harmonics, sag, and swell are the most harmful disturbances in distribution systems. This paper introduces a novel effective controller method for simultaneous compensation of both voltage sag/swell and voltage harmonics by using multifunctional dynamic voltage restorer. In proposed controller method called FFT with integrated ISRF, ISRF detects the magnitudes of voltage sag/swell quickly and precisely, and FFT extracts the selective components of voltage harmonics very effectively. The proposed method integrates the superior properties of ISRF and FFT methods. FFT integrated ISRF is applied for the first time to provide the compensation of both sag/swell and selective harmonics together. The proposed system has ability to compensate symmetrical/asymmetrical sag/swell and symmetrical/asymmetrical selective harmonics which are 5th, 7th, 11th, and 13th. The controlled system is modelled in PSCAD/EMDTC and compared with conventional methods. The performance results verify that the proposed method compensates voltage disturbances effectively in the system.