In view of the problems of reactive power and three-phase unbalance existing in distribution networks in China, this paper realizes the regulation of reactive power and three-phase unbalance by using phase-to-phase capacitor and split-phase capacitor and analyzes the principle of the above regulation method. Taken three-phase unbalanced degree minimum after compensation as the objective, the optimal allocation of the compensation capacity is calculated by applying nonlinear constrained optimization algorithm. Taking the 400 kVA substation transformer when power factor is 0.4~0.9, unbalanced degree is 0~50% and load ratio is 40%~70% as the verification model, this paper gives the selection schemes of the compensation capacitor capacity under different working conditions. By simulation and engineering application, the method of the capacitor regulation proves to be correct and finally the application range of the method is worked out. This work is supported by National Natural Science Foundation of China (No. 51507138).