A Photovoltaic system’s output power fluctuates as insolation varies with weather condition. Fluctuating PV power causes frequency deviations when large PV power is penetrated in the isolated utility. In this paper, a fuzzy based method for leveling the fluctuations of PV power in a PV-diesel hybrid power system is proposed. By means of the proposed method, output power control of PV system becomes possible considering power utility conditions and the conflicting objective of output power leveling and maximizing energy capture is achieved. Here, fuzzy control is used to generate the output leveling power command. The fuzzy control has three inputs of average insolation, variance of insolation, and absolute average of frequency deviation. First, the proposed method is compared with the method where captured maximum power is given to the utility without leveling. Second, the proposed method is compared with a conventional method where captured maximum power is leveled by using an energy storage system and is given to the isolated utility. Simulation results show that the proposed method is effective in leveling PV power fluctuations and is feasible to reduce the frequency deviations of the isolated power utility.