Reactive power and negative-sequence current generated by inductive unbalanced load will not only increase line loss, but also cause the malfunction of relay protection devices triggered by a negative-sequence component in the power grid, which threatens the safe operation of the power system, so it is particularly important to compensate reactive power and suppress load imbalance. In this paper, reactive power compensation and imbalance suppression by a three-phase star-connected Buck-type dynamic capacitor (D-CAP) under an inductive unbalanced load are studied. Firstly, the relationship between power factor correction and imbalance suppression in a three-phase three-wire system is discussed, and the principle of D-CAP suppressing load imbalance is analyzed. Next, its compensation ability for negative-sequence currents is determined, which contains theoretical and actual compensation ability. Then an improved control strategy to compensate reactive power and suppress imbalance is proposed. If the load is slightly unbalanced, the D-CAP can completely compensate the reactive power and negative-sequence currents. If the load is heavily unbalanced, the D-CAP can only compensate the positive-sequence reactive power and a part of the negative-sequence currents due to the limit of compensation ability. Finally, a 33 kVar/220 V D-CAP prototype is built and experimental results verify the theoretical analysis and control strategy.