This article presents a multilevel multifunction inverter (MLMFI) for grid-connected PV systems, which becomes PV-MLMFI. This work is a technical enhancement in the grid-connected PV system to mitigate present energy crises and power quality issues. The proposed MLMFI produces a five-level output AC voltage with two series-connected H-bridges having isolated PV modules. The novel controller presented for MLMFI utilizes the PV system at its maximum power point, irrespective of irradiation and temperature. The proposed controller is a combination of PCC voltage control and a damping controller. The proposed PV-MLMFI is shunt-connected to SMIB to improve the power transfer capacity. The power flow study for SMIB with PV-MLMFI is carried out using MATLAB Simulink software. It is observed that the proposed PV-MLMFI improves the power factor, stability, and power transfer capacity of the SMIB system. Simulation results get validated by using an experiment setup.