In this paper, the virtual synchronous generator (VSG) concept is utilized in the controller of the grid-connected dual two-level voltage source inverter (DTL VSI). First, the topology of the VSG and the DTL VSI are presented. Then, the state-space equations of the DTL VSI and the grid-connected two-level voltage source inverter (TL VSI), regarding the presence of the phase-locked loop (PLL) and the VSG, are given. Next, the small-signal modeling of the DTL VSI and the TL VSI is realized. Eventually, the stability enhancement in the DTL VSI compared with the TL VSI is demonstrated. In the TL VSI, large values of virtual inertia could result in oscillations in the power system. However, the ability of the DTL VSI in damping oscillations is deduced. Furthermore, in the presence of nonlinear loads, the potentiality of the DTL VSI in reducing grid current Total Harmonic Distortion (THD) is evaluated. Finally, by using a proper reference current command signal, the abilities of the DTL VSI and the TL VSI in supplying nonlinear loads and providing virtual inertia are assessed simultaneously. The simulation results prove the advantages of the DTL VSI compared with the TL VSI in virtual inertia emulation and oscillation damping, which are realized by small-signal analysis.