This paper presents the design and development of a 3-phase shunt active filter for compensating the harmonics currents and reactive power generated by nonlinear loads. The topology is based on a current controlled voltage source inverter (CC-VSI) with a dc bus capacitor. Time-domain extraction techniques are used to determine the harmonic components present in the load current and both the control and extraction techniques are carried out using real-time digital signal processing (DSP). A prototype laboratory model and its performance are showed for compensation of current harmonics and power factor on a rectifier with inductive load. The experimental results show that the DSP-controlled shunt active filter can significantly reduce the harmonic distortions in the supply system.