This work presents the way of improving the performance of the distribution network by maintaining voltage profile, voltage stability, and reduction of power loss via injecting reactive power through the network. D-STATCOM is commonly used in the distribution system for reactive power compensation so that it improves voltage profile, reduces power losses, and also improves the system voltage stability. The study of this work was conducted on papyrus feeder which has 59-bus, 47 loads, and a total capacity of 3.9 MW. The voltage profiles of most buses are not in an acceptable range, and the voltage stability index of the buses shows that network is prone to voltage stability problem. The active and reactive power loss of the feeder is 131.72 KW and 111.35 KVAr respectively. The optimal D-STATCOM allocation in electric distribution system enhances in maximizing energy utilization, feeder loss reduction, voltage stability, and profile improvement. To allocate power control variables in the best possible location and with proper size two solution methods are applied. As the first method, the weakest bus of the system was selected for the optimal placement of D-STATCOM using bus based voltage stability index analysis. In the second method, Particle swarm optimization (PSO) was applied for selecting optimal placement and size of DSTATCOM. The PSO optimization algorithm formulates a problem by considering system loss reduction, enhancement of voltage profile and voltage stability index of the operated network. A direct load flow analysis also carried out for the purpose of total system loss and bus voltage magnitude determination before and after compensation with D-STATCOM. The optimal allocation problem was tested in different system cases based on the number and size of D-STATCOM. By comparing the net cost of DSTATCOM in relation to total system loss reduction single D-STATCOM installation has a better system performance. After the installation of single D-STATCOM with an optimal allocation through the feeder, the voltage profile of the system improved between 0.95-1.05 p.u. The voltage stability index of the operated network increases as compared with base case stability. The active and reactive power loss through the line reduced to 25.03% and 25.25% respectively. The compensating device cost analysis indicates that the total cost coverage will take 6.7 years and it is an optimum solution.