In this paper, by defining and solving an optimization problem, amount of distributed generators (DGs) and reactive power sources (RSs) in selected buses of a distribution system are computed to make up a given total of distributed generation for minimizing losses, line loadings, and total required reactive power capacity. The formulated problem is a combinatorial problem, therefore Tabu search algorithm is applied for solving the optimization problem. Results of solving the optimization problem for a radial 33‐bus distribution system and a meshed 6‐bus system are presented. When using less amount of reactive capacity, regarding tap positions of voltage regulators as control variables has considerable role in loss reduction and improvement of voltage profile. In the case of meshed systems, including line loadings in the cost function can significantly change results of solving the optimization problem such as amount of the required reactive capacity and how to assign DGs and RSs to the selected buses. Copyright © 2006 John Wiley & Sons, Ltd.