A significant challenge for designing a coordinated and effective protection architecture of a microgrid (MG) is the aim of an efficient, reliable, and fast protection scheme for both the grid-connected and islanded modes of operation. To this end, bidirectional power flow, varying short-circuit power, low voltage ride-through (LVRT) capability, and the plug-and-play characteristics of distributed generation units (DGUs), which are key issues in a MG system must be considered; otherwise, a mal-operation of protection devices (PDs) may occur. In this sense, a conventional protection system with a single threshold/setting may not be able to fully protect an MG system. To tackle this challenge, this work presents a comprehensive coordinated adaptive protection scheme for AC MGs that can tune their protection setting according to the system states and the operation mode, and is able to switch the PDs’ setting. In the first step of the proposed adaptive algorithm, an offline setting will be adopted for selective and sensitive fault detection, isolation, and coordination among proposed protective modules. As any change in the system is detected by the proposed algorithm in the online step, a new set of setting for proposed modules will be performed to adapt the settings accordingly. In this way, a new set of settings are adapted to maintain a fast and reliable operation, which covers selective, sensitive, and adaptive requirements. The pickup current (Ip) and time multiple settings (TMS) of directional over-current relays (DOCR), as well as coordinated time delays for the proposed protection scheme for both of the grid-connected and islanded modes of operation, are calculated offline. Then, an online adaptive protection scheme is proposed to detect different fault types in different locations. The simulation results show that the proposed method provides a coordinated reliable solution, which can detect and isolate fault conditions in a fast, selective and coordinated adaptive pattern.