Since most of renewable energy resources are dc type, dc microgrids find more attention in deregulated power systems for improvement of reliability and efficiency of the system. In dc microgrids, there is no zero-crossing in current and voltage; so the circuit breaking and fault current limiting are serious concerns. Conventional thyristor-based dc fault current limiters are attractive solutions for tackling this problem. However, they impose permanent interruption on the system in case of temporary fault. In this paper, a novel hybrid circuit breaker (HCB) is proposed to improve power quality of the system by adopting different limiting behaviors for permanent and temporary faults. The proposed HCB transfers load power through a mechanical circuit breaker (MCB) under normal condition. Upon fault occurrence in both sides of the HCB, the fault current is transferred from the MCB to a current limiting path incorporating a zero voltage switching (ZVS) transition mechanism. The HCB limits the fault current for a predefined duration and then interrupts the faulty feeder. In case of temporary fault, the current is returned to the MCB in ZVS. The HCB operation principle is discussed in different operation modes. Capabilities of the proposed HCB are tested and verified by different experiments carried out on a prototype.