When a transformer is connected to a circuit, under certain conditions, magnetizing inrush currents may be about ten times the full load current of the transformer. The currents contain a large amount of harmonic components and cause some relays to trip out. In this paper, the magnetizing inrush currents are compensated using a PWM inverter. The magnetizing inrush currents are detected and the PWM inverter generates compensating currents for the inrush currents. Hysteresis current controllers are used for fast response. The validity of this compensation is investigated by the simulation results. In addition, hardware implementation for the compensator is accomplished to verify the simulation results. Moreover, for the compensator, the relation between the compensating characteristics, the maximum switching frequency and the coupling reactor is discussed based on the simulation results. Finally, characteristics of two current controllers (hysteresis band current controller and ramp-comparison controller) are compared and it is shown that the hysteresis band current controller is more suitable for the compensator. The electromagnetic transient simulator named PSCAD/EMTDC is used for the simulations.