This paper presents the Adaptive Theory based Improved Linear Tracer Sinusoidal (ATILS) Control Strategy for PQ Enhancement using DVR in the Distribution System. The proposed DVR effectively mitigates voltage sag/swell, unbalanced voltage sag/swell for linear loads along with harmonic compensation using ATILS Control Strategy. The DVR consists of voltage source converter (VSC), transformer with capacitor. The main advantages are more efficiency, reliability and its effective control of reactive power. The ATILS Control Strategy is used for extraction of fundamental reference load voltages quickly and accurately to mitigate PQ problems. The proposed ATILS Control Strategy for DVR is modeled using RT-LAB and MATLAB/SIMULINK and its performance is verified for various Power Quality (PQ) problems.