Voltage disturbance generator (VDG) is a kind of device used to generate voltage disturbances that may occur in the network in order to test and evaluate the performance of the power quality devices such as Dynamic Voltage Restorer (DVR) and Uninterruptible Power Supply (UPS). Some of the voltage disturbance generator systems which are available in the literature and commercially available are complex and expensive while the others are simple, inexpensive but less functional. In this paper, a new transformer based, digital signal processor (DSP) controlled VDG is designed which can generate balanced and unbalanced voltage sag/swell and interruption and can adjust the depth, duration and initiation point of disturbances. The proposed system is composed of bidirectional switches, variable transformers and DSP based controller. 3 phase 20 kVA experimental setup is developed to verify the performance of the designed system with linear and non-linear loads. Moreover, the performance of VDG is also investigated in the compensation tests of DVR and UPS.