The objective of this study was to develop a reducedorder small-signal model of a microgrid system capable of operating in both the grid-tied and the islanded conditions. The nonlinear equations of the proposed system were derived in the dq reference frame and then linearized around stable operating points to construct a small-signal model. The high-order state matrix was then reduced using the singular perturbation technique. The dynamic equations were divided into two groups based on the small-signal model parameters ε. The "slow" states, which dominated the system's dynamics, were preserved, whereas the "fast" states were eliminated.Step responses of the model were compared to the experimental results from a hardware test to assess their accuracy and similarity to the full-order system. The proposed reduced-order model was applied to a modified IEEE-37 bus gridtied microgrid system to evaluate system's dynamic response in grid-tied mode, islanded mode, and transition from grid-tied to islanded mode.