An improved reactive power optimization algorithm of distribution system is presented, which incorporates distributed generations and running cost. By this method, the comprehensive cost can be reduced to the potential minimum value. Firstly, based on the function between the operations of preliminary main equipments and the comprehensive cost, the optimization model is presented to reduce the comprehensive cost. Secondly, the traditional back/forward sweep method is improved by updating DGs reactive power amount during each iterative step timely. The changing value is gained according to the voltage deviation amount. Thirdly, a novelty hybrid PSO algorithm is presented, which can adapt binary variables and discrete variables in unison. Lastly, the algorithm is realized on the platform of VC++ 6.0 and the case study is done. The results have proved that this method can reduce the comprehensive cost and the optimization problem can be solved quickly.