In a three phase four wire distribution system harmonics are injected due to nonlinear loads which results in poor performance of the equipments connected to the same utility. This paper considers some of the harmonic injecting loads and their effects on the utility is being discussed. From various literature survey this work utilises Zig-Zag transformer configuration for the reduction of harmonics and neutral current. The proposed system is simulated using MATLAB/SIMULINK. The performance of Zig-Zag transformer is analysed by comparing THD of source current. In addition to it laboratory test has been conducted to evaluate the performance of Zig-Zag Transformer under unbalanced nonlinear load. The simulation and laboratory results indicate that the Zig-Zag transformer is capable of reducing the harmonics in line as well as neutral and attenuating the neutral current in the distribution system.