This paper presents the performance of Power Quality (PQ) which is improved by using diode clamped multilevel inverter. Due to synchronization the grid interfaced performance of DG systems affected by PQ events such as, balanced and unbalanced voltage sag/swell, frequency shift, phase jump and harmonic distortions. In this proposed paper the five level inverter is used to reduce harmonics. The droop control technique is also used to produce PWM. Capacitors are also used to eliminate unwanted noises that occur in the voltage side. Here an Amplitude Adaptive Notch Filter (AANF) is used for detection of utility voltage, phase angle due to its adjustable accuracy and also estimate frequency and its amplitude. The proposed control technique in integrating the Dg system for PQ events to the utility grid is done using MATLAB simulations.