In voltage-source converter (VSC) systems, utilization of filter inductors with deep saturation characteristics is often advantageous due to the improved size, cost, and efficiency. However, with the use of conventional current regulation (CCR) methods, the inductor saturation results in significant dynamic performance loss and poor steady-state current waveform quality. This paper proposes the inverse dynamic model (IDM)-based compensation method to overcome these performance issues. The method converts the nonlinear inductor of the plant to a fictitious linear inductor such that linear current regulators can perform satisfactorily. In conjunction, identification of L–R parameters is performed to obtain IDM of the system within an acceptable range of sensitivity yielding satisfactory performance. The performance issues of CCR methods with saturable inductor are demonstrated by simulations and experiments. Then, the proposed method is experimentally verified on a single-phase 1.5-kW grid-connected VSC. The performance improvement over the CCR methods is verified by a detailed comparison of experimental waveforms.