In this paper, a new hybrid unified power quality conditioner (HUPQC) is proposed to improve current and voltage imperfections in distribution systems. The proposed HUPQC is comprised of the shunt hybrid active power filter (SHAPF), the dynamic voltage restorer (DVR) and the isolated bi-directional DC-DC converter. The main contribution of the study is a new HUPQC topology that enables the reduction in the voltage rating of the DC link capacitor by the help of the SHAPF. The cost and size of the DC link are reduced and switching losses of the voltage source inverter (VSI) is reduced with the low voltage DC link advantage of SHAPF. The DC-DC converter provides isolation and bi-directional power flow between the DVR and the SHAPF during voltage sag and swell. The performance of the proposed HUPQC is evaluated through extensive simulations for mitigating unbalanced voltage sag/swell and compensating current harmonics by using PSCAD/EMTDC simulation tool.