Modular multilevel converter (MMC) is well suited for high-power and medium-voltage applications. However, its performance is adversely affected by asymmetry that might be introduced by the failure of a limited number of submodules (SMs) or even by severe deviations in the values of SM capacitors and arm inductors, particularly when the number of SMs per arm is relatively low. Although a safe-failed operation is easily achieved through the incorporation of redundant SMs, the SMs’ faults make MMC arms present unequal impedances, which leads to undesirable internal dynamics because of unequal power distribution between the arms. The severity of these undesirable dynamics varies with the implementation of auxiliary controllers that regulate the MMC internal dynamics. This paper studied the impact of SMs failure on the MMC internal dynamics performance, considering two implementations of internal dynamics control, including a direct control method for suppressing the fundamental component that may arise in the dc-link current. Performances of the presented and widely-appreciated conventional methods for regulating MMC internal dynamics were assessed under normal and SM fault conditions, using detailed time-domain simulations and considering both active and reactive power applications. The effectiveness of control methods is also verified by the experiment. Related trade-offs of the control methods are presented, whereas it is found that the adverse impact of SMs failure on MMC ac and dc side performances could be minimized with appropriate control countermeasures.