In AC microgrids, voltage source inverters (VSIs) have become widely employed to interface DC energy sources to the AC network. Apart from power generation, VSI-based energy sources can also perform ancillary services such as demand side management using conservation voltage reduction (CVR). In conventional distribution systems, CVR involves lowering the voltage levels of the system within permissible limits to reduce the amount of power consumed by certain loads. However, in autonomous microgrids, the application of CVR for demand side management has not been fully explored yet. Thus, in this paper, a CVR strategy for a droop-controlled VSI-based distributed generation (DG) operating in an autonomous microgrid is proposed. This strategy employs the deviation in DG output voltage magnitude and frequency, caused by an increase in power demand during peak and overloading conditions, to determine the amount of voltage compensation required to reduce the microgrid bus voltages. In addition, a controller to coordinate between the proposed CVR strategy and load shedding is also developed to operate the DGs during overloading conditions. The proposed strategy is verified with a microgrid test system, and its performance is validated on MATLAB/Simulink software environment.