IEEEIn three-phase three-wire (3P3W) voltage-source converter (VSC) systems, utilization of filter inductors with deep saturation characteristics is often advantageous due to the improved size, cost, and efficiency. However, with the use of conventional synchronous frame current control (CSCC) methods, the inductor saturation results in significant dynamic performance loss and poor steady-state current waveform quality. This paper proposes an inverse dynamic model based compensation (IDMBC) method to overcome these performance issues. For this purpose, two-phase exact modelling of the 3P3W VSC control system is obtained. Based on the modelling, the inverse system dynamic model of the nonlinear system is obtained and employed such that the nonlinear plant is converted to a virtual linear inductor system for linear current regulators to perform satisfactorily. Further, to control phase currents in the synchronous frame a two-phase coordinate transformation (TCT) is proposed. The IDMBC method is tested via dynamic command response and waveform quality simulations and experiments that employ saturable inductors reaching down from full inductance at zero current to 1/9<sup>th</sup> inductance at full current. The results obtained demonstrate the suitability of the method for 3P3W VSCs employing saturable inductors.