Considering the importance of line fundamental impedance from the inverter to the point of common coupling (PCC) in microgrids, this study analyses the influence of fundamental impedance on system stability. Line fundamental impedance values not only apply to decoupled droop control, which can realise accurate control between active and reactive power, but also regulate the droop coefficient to eliminate system circulation, realise power sharing and improve system stability when a multi-distributed generation system operates in parallel. Moreover, the PCC can sense grid fault on the basis of variations in fundamental impedance. A novel fundamental impedance identification method that adopts a constant power control strategy by varying the active and reactive powers in the grid-connected mode is proposed. In addition, the proposed method has online real-time calculation capability. This strategy has been tested in simulation and in experiments by using a scaled laboratory prototype. Simulation and experimental results verify the accuracy of the proposed scheme.