Power systems continuously subjected to various types of disturbances, which cause the problem of losing stability. The cause of instability is disturbances. Many techniques have applied to decrease the negative impact of disturbance in power system stability. From these techniques, Unified power flow controller (UPFC) being a multi-variable power system controller, has been the most versatile device due to its ability to control real and reactive power by controlling the voltage of the bus to which it is connected. In this thesis, power system transient instability of North West Region (NWR) generators of Ethiopian power system introduced by the faults and load variation damped out quickly by using UPFC. UPFC is connected to Bahir Dar substation II bus bar and its location is on highly loaded bus bar, which is 230kV bus bar of Bahir Dar substation II. The sizing of UPFC is determined from its placement. The NWR power network and UPFC modeling have done by using MATLAB/SIMULINK software. The system performance has performed in different scenario (under base case condition without and with UPFC, under faulted condition without and with UPFC). One problem associated with using UPFC to control power system stability is the presence of low damping. This problem solved in this research by using a fuzzy controller. The simulation result shows that when three phases short circuit happened and fault stayed in long time(s), the rotor angle speeds, active power and reactive powers are unstable. However, UPFC regains their stability. Under sustained fault, the peak overshoot of the rotor angles deviation improved from infinity to constant steady state value, rotor speed improved from oscillatory instability to per unit rated speed (1pu), active and reactive powers improved from oscillatory unstable to constant steady state values. On the same scenario when Fuzzy logic is applied to UPFC, settling time of rotor angles and speeds reduced. The rotor angle settling times were more than 15sec before Fuzzy logic is applied. However, when fuzzy logic applied to UPFC controller, the rotor angles settling time of generator reduced to 2.5sec and 11.5sec. In addition, their rotor speeds settling time reduced to 12sec.