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Three-phase unbalanced and nonlinear loads aggravate harmonic problems in low-voltage distribution networks. In this paper, a hybrid inductive and active filter (HIAF) system with a Ddy converter transformer is proposed. By establishing the circuit and corresponding mathematical models, the working mechanism of the HIAF system in harmonic suppression is analyzed. In the designed HIAF system, we install the detection point on the grid-side winding and the compensation point on the filtering winding. Since both windings have the same connection, no phase compensation between the harmonic detection point and compensation point is demanded. Eventually, we apply a harmonic damping control and zero-value impedance control strategy to realize harmonic suppression under both balanced and unbalanced loads. The simulation results show that the HIAF system can effectively suppress harmonics under various load conditions.