This paper presents a fuzzy logic, PI controlled shunt active power filter used to compensate for harmonic distortion in three-phase four-wire systems. The shunt active filter employs a simple method for the calculation of the reference compensation current based on Fast Fourier Transform. The presented Shunt Active Power filter is able to operate in balanced, unbalanced and Variable load conditions. Classic filters may not have satisfactory performance in fast varying conditions. But auto tuned active power filter gives better results for harmonic minimization, reactive power compensation and power factor improvement. The proposed auto tuned shunt active filter maintains the THD well within IEEE-519 standards. The proposed methodology is extensively tested for wide range of different Loads with Improved dynamic behavior of shunt active power filter using fuzzy logic, PI controllers. The results are found to be quite satisfactory to mitigate harmonic Distortions, reactive power compensation and power factor improvement.