This paper presents two model-based approaches for designing control strategies in order to integrate a diesel generator as frequency and voltage leader in an islanded microgrid configuration. The selected microgrid configuration is composed of a hybrid wind-diesel system with a battery storage system (BSS). A model predictive control (MPC) scheme and a model reference adaptive control (MRAC) scheme are selected for this task, due to its flexibility and capability for handling constraints and fault-tolerance, respectively, which is helpful for smart grid (SG) architectures to achieve reduced fuel consumption and with and enhanced reliability and integration of renewable energy sources (RES) into the electrical network. A constrained fuel consumption strategy has been implemented in the diesel engine generator (DEG) controller with the help of MPC strategy and fault-tolerance is achieved with MRAC. Different operating conditions of the microgrid were simulated: 1) diesel-only generation, 2) wind turbine generator (WTG) ignition, 3) sudden connection of 0.5 MW load, and 4) a 3-phase fault with duration of 0.5 seconds. Improved performance over a baseline controller, IEEE type 1 automatic voltage regulator (AVR), is achieved. Dynamic models of the network components are presented in details on design and implementation of the microgrid configuration in Matlab/SimulinkR .