This paper presents a configuration and a control strategy for dynamic voltage restorer (DVR). In order to compensate the voltage of each phase separately, a closedloop PI control law in the dq reference frame is proposed. The proposed method provides a fast response and effective sag compensation capabilities. In addition, in order to detect voltage sag, a linear Kalman filter is employed toestimate threephase voltages. By using Kalman filter, the voltage sag can be detected faster than other conventional methods. Therefore DVR can compensate voltage sag quickly and accurately. The obtained results that are simulated in Matlab Simulink indicate that the proposed method can mitigate the balanced and unbalanced voltage sag types efficiently in the distribution networks.