Poor voltage regulation is one of the major drawbacks of an isolated self-excited induction generator. The terminal voltage may increase considerably due to a small increase in speed. In most developing countries, unregulated wind-turbines are often used due to their lower cost. Under these conditions the terminal voltage may increase to a dangerously high level which may cause damage to the machine, load or excitation capacitor. This paper examines the advantage of connecting a saturable reactor in parallel with the excitation capacitor. It is found that the saturable reactor improves voltage regulation considerably.