When multiple paralleled distributed generation (DG) units operate in an islanded microgrid, accurate power sharing of each DG unit cannot be achieved with a conventional droop control strategy due to mismatched feeder impedance. In this paper, a small AC signal (SACS)-injection-based modified droop control method is presented for accurate active and reactive power sharing among DG units. The proposed control method adjusts the voltage amplitude of each DG unit by injecting small AC signals to form a reactive power control loop. This strategy does not need communication links or to specifically obtain the physical parameter of the feeder impedance and only requires the local information. Moreover, the parameter design procedure and stability analysis are given full consideration. Finally, simulation and experimental results verify the effectiveness of the proposed control scheme, and accurate active and reactive power sharing can be achieved.