This paper presents an adjustable differential protection scheme for microgrids with inverter-based distributed generation. In this study, a microgrid protection schemehas proposed based on positive sequence current and mode detection to overcome the limitations of conventional differential protection.The proposed protection scheme used a fault current magnitude andundervoltage protection to distinguish between theislanded mode and the grid-connected mode. The fault currents and voltages retrieved at the two ends are reprocessed to determine the faulty phase. Then, the differential of positive sequence current is used for fault detection and isolation. The main feature of the proposed scheme is its ability to protect a microgrid for loop and radial topology in the islanded mode and the grid-connected mode against all types of faults. Furthermore, the proposed scheme reduces a computational burden and communication units and considers the unbalanced loads for most distribution networks. The effectiveness of the proposed scheme is proved by the PSCAD/EMTDC software simulation of a case study. The simulation results show the ability of the presented scheme.