Microgrids are eco-friendly power systems because they use renewable sources such as solar and wind power as the main power source. However, the stochastic nature of wind and solar power is a considerable challenge for the efficient operation of microgrids. Microgrid operations have to satisfy quality requirements in terms of the frequency and voltage. To overcome these problems, energy storage systems for short- and long-term storage are used with microgrids. Recently, the use of short-term energy storage systems such as flywheels has attracted significant interest as a potential solution to this problem. Conventional flywheel energy storage systems exhibit only one control mode during operation: either smoothing wind power control or frequency control. In this paper, we propose a new flywheel energy storage system based on a doubly fed induction machine and a battery for use with microgrids. The new flywheel energy storage system can be used not only to mitigate wind power fluctuations, but also to control the frequency as well as the voltage of the microgrid during islanded operation. The performance of the proposed flywheel energy storage system is investigated through various simulations using MATLAB/Simulink software. In addition, a conventional flywheel energy storage system based on a doubly fed induction machine is simulated and its performance compared with that of the proposed one.