The concepts of microgrids (MGs) and smart grid represent the recent targeted revolution towards fully smart electrical network integrated with high penetration of renewable energy sources (RESs). The protection system of MGs becomes a challenge due to variable characteristics of its currents, bidirectional power flow and output power fluctuations of RES, causing selectivity and sensitivity issues for conventional protective devices (PDs) with fixed setting. In this paper, a smart protection scheme (SPS) is proposed using micro-phasor measurement units (μPMUs) to obtain the continuous rapid synchronized phasor measurement data. And it is communicated with a microgrid central controller (MGCC) through highly reliable communication architecture to carry out online smart adaptive protection scheme. Fault index coefficients and abnormality coefficients are calculated for each feeder to detect the fault location and the abnormality case. Detailed modeling of an MG including 10-bus connected distribution system with integrated distributed generation (DG) is simulated using ETAP software. The proposed protection algorithm is modeled and evaluated using MATLAB software. The proposed fault detector and abnormality detector can enable quick and accurate fault identification and isolation.