The operation of microgrids that contain microgeneration units such as wind, photovoltaic, and diesel power generations is always challenging towards the establishment of such microgrids. Such challenges arise due to the intermittent behavior of primary energy sources such as wind and solar. The largest island, Masirah, in the Sultanate of Oman, has significant potential of establishing microgrid using locally available sources of renewable energy. This paper presents the operation and control dynamics of a microgrid system that has significant potential to implement for Masirah Island. The case study microgrid system model has constructed using MATLAB/SIMULINK. The operational behavior of the case study microgrid is analyzed with and without a microgrid controller. It also presents the design and analysis of an efficient microgrid controller that is capable of maintaining an active power balance in the microgrid. The combination of a power absorber circuit and a power-frequency droop characteristic are incorporated in the proposed microgrid controller. The outcomes show that the designed controller is capable of maintaining microgrid frequency within the grid standard, which indicates the capability of operating such microgrid in isolated modes.