Control of harmonic and reactive power typically requires high bandwidth, high power converters. As these are conflicting requirements, the cost of such an installation is typically high. In this paper, a hybrid power quality compensator is proposed which consists of a square wave inverter for reactive power compensation combined with a hybrid activce/passive filter for harmonic compensation. The filter removes the harmonics produced by tlle load and the square wave inverter, resulting in a sinusoidal, unity power factor supply current. A suitable control strategy is proposed based on synchronous reference frame transformations and a PI regulator. Control of the reactive currrent is achieved by varying the bus voltage of the square wave inverter to vary the voltage across tlie coupling inductor. A simulation model is developed in SIMULINK and used to demonstrate the operation of the compensator.