This document presents a multilevel diode clamped D-STATCOM topology to improve power quality in distribution systems. D-STATCOM is a shunt controller connected in parallel to mitigate power quality issues like harmonics from nonlinear loads. A diode clamped multilevel structure is used for the D-STATCOM. A PQ-based control strategy generates reference signals processed through level-shifted multicarrier PWM to generate gate pulses. Simulation results show the 5-level D-STATCOM compensates for load harmonics, regulating source current quality under both fixed and variable load conditions. THD analysis confirms source current distortion is maintained within limits while load current is distorted due to its nonlinear nature.