Active filtering of electric power has now become a mature technology for harmonic and reactive power compensation in three phase three-wire and three phase four-wire ac power networks with nonlinear loads. Shunt active filter provides equal and opposite current to harmonic current produced by load into line. The objective of this paper is to obtain effective compensation of harmonic currents present in source due to nonlinear load and also compensation of reactive power using shunt active filter. Simulation of shunt active filter for three phase three wire networks using generalized fryze strategy gives to guarantee linearity between the supply voltage and the compensated current. Fryze strategy also gives reduction in calculations compare to pq strategy. Hysteresis current control technique is effective technique for simulation of shunt active filter. Simulation results using matlab/simulink shows that shunt active filter gives effectively compensation of harmonic currents due to non linear load and reactive power by reducing Total Harmonic Distortion (THD) in source current. The simulation results confirm the improvement of the quality of energy, by maintaining the THD of the source current after compensation well below 5%, the harmonics limit imposed by the IEEE-519 standard.