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In three-phase three-wire (3P3W) voltage-source converter (VSC) systems, utilization of filter inductors with deep saturation characteristics is often advantageous due to the improved size, cost, and efficiency. However, with the use of conventional synchronous frame current control (CSCC) methods, the inductor saturation results in significant dynamic performance loss and poor steady-state current waveform quality. This paper proposes an inverse dynamic model based compensation (IDMBC) method to overcome these performance issues. Accordingly, a review of inductor saturation and core materials is performed, and the motivation on the use of saturable inductors is clarified. Then, two-phase exact modelling of the 3P3W VSC control system is obtained and the drawbacks of CSCC have been demonstrated analytically. Based on the exact modelling, the inverse system dynamic model of the nonlinear system is obtained and employed such that the nonlinear plant is converted to a fictitious linear inductor system for linear current regulators to perform satisfactorily.