This paper presents a study on optimal and stable operation strategy of an islanded microgrid. By considering the minimum power limit of the DG, the operating strategy is discussed in order to analyze the stability of the microgrid. Then, a method based on particle swarm optimization (PSO) algorithm is used to achieve multi-objective optimization such as the maximized renewable energy source penetration, the minimized CO2 emission, and the reliability of microgrid. The proposed operation strategy will be verified by using Matlab programming, PSCAD simulation program and measured data from power system on Chuja Island in 2015.