Cost of various energy storage technologies is decreasing rapidly and the integration of these technologies into the power grid is becoming a reality with the advent of smart grid. Dynamic voltage restorer (DVR) is one product that can provide improved voltage sag and swell compensation with energy storage integration. Ultracapacitors (UCAP) have low-energy density and high-power density ideal characteristics for compensation of voltage sags and voltage swells, which are both events that require high power for short spans of time. The novel contribution of this paper lies in the integration of rechargeable UCAP-based energy storage into the DVR topology. With this integration, the UCAP-DVR system will have active power capability and will be able to independently compensate temporary voltage sags and swells without relying on the grid to compensate for faults on the grid like in the past. UCAP is integrated into dc-link of the DVR through a bidirectional dc-dc converter, which helps in providing a stiff dc-link voltage, and the integrated UCAP-DVR system helps in compensating temporary voltage sags and voltage swells, which last from 3 s to 1 min. Complexities involved in the design and control of both the dc-ac inverter and the dc-dc converter are discussed. The simulation model of the overall system is developed and compared to the experimental hardware setup.