This paper presents a novel structure for a three-phase four-wire (3P4W) distribution system utilizing unified power quality conditioner (UPQC). The 3P4W system is realized from a three-phase three-wire system where the neutral of series transformer used in series part UPQC is considered as the fourth wire for the 3P4W system. A new control strategy to balance the unbalanced load currents is also presented in this paper. The neutral current that may flow toward transformer neutral point is compensated by using a four-leg voltage source inverter topology for shunt part. Thus, the series transformer neutral will be at virtual zero potential during all operating conditions. The simulation results based on MATLAB/Simulink are presented to show the effectiveness of the proposed UPQC-based 3P4W distribution system.