The recent trends in electrical power distribution system operation and management are aimed at improving system conditions in order to render good service to the customer. The reforms in distribution sector have given major scope for employment of distributed generation (DG) resources which will boost the system performance. This paper proposes a heuristic technique for allocation of distribution generation source in a distribution system. The allocation is determined based on overall improvement in network performance parameters like reduction in system losses, improvement in voltage stability, improvement in voltage profile. The proposed Network Performance Enhancement Index (NPEI) along with the heuristic rules facilitate determination of feasible location and corresponding capacity of DG source. A Priority list is prepared with decreasing values of NPEI so that the designer can select most feasible location. The developed approach is tested with different test systems to ascertain its effectiveness