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Summary: This article presents an adaptive voltage sag compensation scheme by using interline bridge‐type fault current limiter (IBFCL) in radial distribution network to protect customers connected to the point of common coupling (PCC). Regarding voltage sag depth, the IBFCL provides a variable resistor in faulted feeder to compensate the PCC voltage at the acceptable level under whole voltage sag condition. To achieve this, a new control system based on the deviation of voltage sag at PCC bus is designed and implemented to the IBFCL. To check the effectiveness of the IBFCL for voltage sag compensation, extensive time domain simulations are performed under both symmetrical and asymmetrical fault conditions on the distribution system in professional's simulation tool for analyzing power systems transients (PSCAD)/electromagnetic transients including DC (EMTDC) environment. Also, its performance and control system are compared to the conventional BFCL and transformer‐type solid‐state fault current limiter (TSSFCL). The simulation results show that by using only one limiting resistor in the IBFCL used in distribution systems including multifeeders connected to the PCC, in addition to reducing the cost of limiting the fault current, the PCC bus voltage has effectively compensated the PCC bus. Also, comparison analysis with the conventional BFCL and TSSFCL shows that it outperforms them in terms of fault detection, voltage recovery time, and fault current limitation. [ABSTRACT FROM AUTHOR]