A microgrid, particularly one that is islanded, is highly sensitive to the problems of voltage and frequency variations. The voltage and frequency deviations in the power system are caused due to the mismatches in its active and reactive power, leading to power quality problems. One of the significant reasons for issues in the microgrid’s power quality is voltage unbalance. A microgrid might experience voltage unbalance due to the unequal load distribution among the three phases. This paper addresses issue of unbalancing in the system by coordinating positive and negative sequence (PN-sequence) controllers of inverter-interfaced distributed generations (DGs) in an islanded microgrid. Although, particularly in islanded microgrids, independent control of distributed generations for mitigating voltage unbalance is not a feasible solution. Hence, voltage unbalance factor mitigation is achieved by implementing demand-side management through thermostatically controlled devices (TCDs) as a complementary approach to the existing sequence controllers. Moreover, this paper exhibits the coordination of the PN-sequence controller of inverter-interfaced DGs and TCDs on a standard IEEE benchmark-33 bus test system to show its benefit in maintaining the voltage unbalance factor within the standard limit of 2% as per International Electrotechnical Commission (IEC) 61000-3-13 norms in any extensive system. The performance of the proposed control strategy has been analyzed and validated considering different unbalanced loading conditions, which are time-varying as well as involving TCDs. The testing of the islanded microgrid involving coordinated control strategy along with small signal stability analysis has been executed on the MATLAB/Simulink platform.