A distribution static compensator (DSTATCOM) is used for power quality improvement in the distribution system. In the conventional DSTATCOM, the dc voltage is kept constant and it is selected based on rated reactive load. Under light load or reduced load conditions, the compensator works perfectly even though the dc voltage is reduced from its rated value. Maintaining the dc voltage constant under reduced or light load conditions leads to unnecessary voltage stress across the switching devices. Therefore, in this study, a simple dynamic dc voltage regulation is proposed to reduce the voltage stress across switching devices under the reduced load conditions. The proposed algorithm optimises the value of dc voltage based on reactive load without compromising the performance of the DSTATCOM. To validate the proposed method, simulation and experimental studies were carried out on the three-phase two-level split-capacitor DSTATCOM for harmonic mitigation, reactive power compensation and load balancing.