In this paper, a modulation and control method for the new transformerless unified power flow controller (UPFC) is presented. As is well known, the conventional UPFC that consists of two back-to-back inverters requires bulky and often complicated zigzag transformers for isolation and reaching high power rating with desired voltage waveforms. To overcome this problem, a completely transformerless UPFC based on an innovative configuration of two cascade multilevel inverters has been proposed. The new UPFC offers several advantages over the traditional technology, such as transformerless, light weight, high efficiency, low cost and fast dynamic response. This paper focuses on the modulation and control for this new transformerless UPFC, including optimized fundamental frequency modulation for low total harmonic distortion and high efficiency, independent active and reactive power control over the transmission line, dc-link voltage balance control, etc. The new UPFC with proposed control method is verified by experiments based on 4160-V test setup. Both the steady-state and dynamic-response results will be shown in this paper.