An increasing of utilization of electrical energy, distribution system construction problems and load variations are subjected to increase the fault current level. The cause of voltage sags and phase angle jump is due to various faults like, single phase to ground fault, phase to phase faults, two phase to ground fault, three phase faults and three phase to ground fault. In this thesis by using fault current limiter (FCL) voltage sag and phase angle jump is compensated or the fault current is limited to desired value. The location of the FCL is identified by selecting faulty feeder. Using the recent data taken from Bahir Dar substation II the fault is common after point of common coupling (at the customers side of the system).The simulation is done by using MATLAB/Simulink software to analyze the voltage sag and phase angle jump due to the fault circuit current of the Air Force feeder is improved using fault current limiter. The model of the system and FCL modeling are done by using MATLAB/Simulink software. The study system is simulated using MATLAB- Simulink under single phase to ground fault, phase to phase faults, two phase to ground fault, three phase faults and three phase to ground fault Condition without and with FCL. The simulation result shows that when there is fault system the current exceeded 1.5 kA and the recovery time is more than 3 seconds without FCL if the existed protective devices are not damaged. At the time of connecting FCL the fault current decreases from 1.5 KA to 450A and the system is recovered and backs to normal operation system within 0.5 seconds. This means that 70% of fault current is reduced by using the of fault current limiter (FCL).