In this paper a fast dynamic response single phase active power filter is proposed. The method proposed, compensates the non-linear load by improving the power factor to the desired value and also eliminates the harmonics. The scheme is shown to work for both types compensation i.e. power factor correction plus harmonic elimination and harmonic elimination only under sinusoidal and non-sinusoidal supply voltage conditions. The active power filter (compensator) is realized using a single-phase voltage source inverter operated in a hysteresis current control mode. The method is validated through digital simulation results using MATLAB. The results have been shown with ideal and practical compensator with an emphasis on dynamic performance.