This paper presents decentralized control of an islanding/grid-connected DC/AC hybrid microgrid (μG) using battery energy storage system (BESS) and distributed energy resource (DER). In DC/AC μG unified with different DERs and BESS, the intermittent output nature of DERs due to fluctuating input characteristics and strong interaction of sources, loads, and primary grid, causes variations in frequency and bus voltage. To solve these issues, the paper proposes a decentralized control method which incorporates active/reactive power (P/Q) control, DC virtual droop control, voltage control, frequency droop control, current control, maximum power point tracking, and a phase-locked loop (PLL). The coordination and integration of various control parameters will ensure a smooth transition as well as the overall stability of the system. The BESS and DER’s interfacing converters are autonomously controlled in this control scheme without communication using the frequency droop and bus voltage control. Correspondingly, the control techniques comprehend different operating modes depending on the state of charge of BESS, distributed generation, and grid. During switching the two interlinking converters (IC), high-frequency harmonics are created, which are eventually mitigated by the inductor-capacitor-inductor (LCL) filters employed in the AC bus. Virtual droop control will ensure active damping of the harmonics in the LCL network. The maximum power transfer in interlinking converters (ICs) is improved using the proposed approach for input-source variations. Simulations were performed using MATLAB/Simulink and verified using the hardware in the loop (HIL) to prove the effectiveness of the control scheme proposed.