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Alternating current (AC) microgrids are the next step in the evolution of the electricity distribution systems. They can operate in a grid-tied or island mode. Depending on the services they are designed to offer, their grid-tied or island modes could have several sub-operational states and or topological configurations. Short-circuit current levels and protection requirements between different microgrid modes and configurations can vary significantly. Designing a microgrid’s protection system, therefore, requires a thorough understanding of all microgrid operational modes, configurations, transitional states, and how transitions between those modes are managed. As part of the microgrid protection design, speed and reliability of information flow between the microprocessor-based relays and the microgrid controller, including during microgrid failure modes, must be considered. Furthermore, utility protection practices and customer requirements are not always inclusive of the protection schemes that are unique to microgrids. These and other aspects contribute to the overall complexity and challenge of designing effective microgrid protection systems. Following a review of microgrid protection system design challenges, this paper discusses a few real-world experiences, based on the authors’ own engineering, design, and field experience, in using several approaches to address microgrid protection system design, engineering, and implementation challenges.