AbstractIn a modular multilevel converter (MMC) system, the sub‐module capacitors account for a large proportion of the cost, volume, and weight. This paper proposed a method to reduce the total capacitance of MMC based on the combination of boosting the modulation index (m) and second‐harmonic circulating current injection (SCCI). A small amount of full‐bridge sub‐modules was added to conventional half‐bridge sub‐modules (HBSM) based MMC to form the hybrid MMC. The third‐harmonic voltage injection technology was used to increase the m of hybrid MMC without the common‐mode voltage injected on the ac‐side. An optimized SCCI method determined by m was introduced, which limited the root mean square (RMS) of arm current. An improved modulation approach is used to eliminate the coupling effect of third‐harmonic voltage injection and SCCI in boosting m, ensuring that the m increases to 1.15 with the optimized SCCI. Compared with conventional HBSM‐MMC, the proposed method reduced the total capacitance by approximately half when m = 1.15. A comprehensive comparison of different capacitance reduction methods was presented to demonstrate the cost and effect. Simulation and experiment verified the proposed method.