As renewable energy based distributed generation (DG) units are being increasingly connected throughout today’s distribution system, they can be used to mitigate harmonics caused by the wide adoption of nonlinear residential loads. To make the best use of all these DGs’ ratings, it is important to develop a method to coordinate DGs’ participation efforts in harmonic compensation according to their ratings and locations. Due to the low droop slope for the harmonic controller in DGs, traditional harmonic droop control methods can lead to significant harmonic sharing errors. Also, very limited work has been carried out in literature so far to identify the DGs’ compensation priorities according to their locations and power rating. To address this issue, a novel priority-driven, droop-based, selective harmonic compensation scheme is developed in this work. The proposed control scheme improves the harmonic sharing accuracy. The compensation priority design and the way to integrate with droop control is studied. To ensure stability, a virtual impedance model-based stability analysis is also discussed. Analysis, comparisons, and simulation results are used to verify the improvement of compensation performance.