This paper proposes a smooth transition control strategy for voltage source inverters between standalone (SA) and grid connected (GC) modes of operation. In both GC and SA modes of operations, the inverters use the droop control method to regulate the real power flow without the need of external communications between them. One of the distributed energy sources working in the microgrid system is designated as a dispatch unit to facilitate interconnection with utility grid and achieve smooth transition between the modes of operations. In the transition modes the dispatch unit takes extra responsibility and ensures the continuous power delivery to the load. For smooth transition from grid connected to stand alone, the dispatch unit compensates for the grid current instantly after the transition and then gradually it makes the other sources share that current. The dispatch unit also adjust its output power to make the transition from standalone to grid connect as that power affect the frequency through the droop control. The performance of the proposed control technique has been verified with simulation and experimental studies.