Implementation of Distributed Generation (DG) can improve power quality and reliability, and guarantee continuity of power supply. This paper addresses the issue of continuity of power supply especially for isolated communities. A part of a network can be electrically isolated from the main grid when the grid fails to supply power due to a fault in the network or unavailability of power generation. In this paper, a mini hydro-wind hybrid power system is considered, and operation and control of the hybrid system during connecting it with the grid as well as its operation in the isolated condition are investigated. The system behaviour and DG responses are also examined. Islanding operation is the most sensitive and problematic operation in power systems. Simulation has been conducted with PSCAD/EMTDC on a hypothetical test system for different scenarios and results are presented.