This paper presents the VSI based STATCOM using Hysteresis current controller for mitigating voltage sag due to sudden increase in load. As a solution for mitigation of voltage sag generally The Static Synchronous compensator is employed. A STATCOM generates a current wave such that it compensate by cancelling out the nonlinear current waveform generated by load. Three phase inverter based on MOSFET is designed and firing pulses to the device is given by hysteresis current controller, which produces proper switching frequency to the inverter in less delay time to manipulate the voltage sag during change in load. One of the advantages of hysteresis control is that it eliminates the need of modulator. STATCOM with hysteresis current controller model compensates the voltage sag with efficient and effective manner, because of its fast dynamic response to any disturbance The STATCOM has further potential by giving an inherently faster response and greater output to a system with depressed voltage and offer improved quality of supply. The STATCOM using Hysteresis current controller scheme in distribution system for power quality improvement is simulated using MATLAB/SIMULINK in power system block set.