The most common power quality problems in distribution systems are related to unbalanced voltage sags. Voltage sags must be detected quickly and corrected in a minimum amount of time. One of the most widely used methods for sag detection is based on the d-q transformation. This method has the disadvantage of missing the detection of unbalanced faults, because this method uses a voltage sag level signal obtained from the average of 3 phases for sag detection. In this paper, an adaptive filter sag detection method is proposed for Dynamic Voltage Restorers (DVR) under unbalanced fault conditions. The proposed DVR controller is able to detect balanced, unbalanced and single phase voltage sags. A novel reference voltage generation method is also presented. To validate the proposed control methods, a 3-phase DSP controlling a DVR prototype with a power rating of 1.5-kVA has been developed. Finally, experimental results are presented to verify the performance of the proposed control methods.