In this article, the impact of interharmonics generated in photovoltaic (PV) integrated systems on phasor measurement unit (PMU)-assisted zone-3 protection scheme (Z3PS) is investigated. Generally, PMUs integrated with conventional discrete Fourier transform (DFT) algorithm are employed to compute time-synchronized voltage and current phasors. However, the presence of interharmonics in PV integrated systems may force to cease the proper performance of Z3PS since DFT algorithm integrated with PMUs fails to identify and eliminate closely spaced interharmonics resulting in incorrect computation of phasors. This phenomena further leads to improper estimation of apparent impedances by relays. To overcome this issue, a phasor signal processing model (PSPM) is proposed where a preprocessing filtering step involving signal processing by an estimation of signal parameters via rotational invariance techniques (ESPRIT) or matrix pencil (MP) algorithm is added before PMUs. Proposed PSPM helps in eliminating noise and closely spaced interharmonics present in the signals and consequently, enhances the performance of PMU-assisted Z3PS. Integration of PV to IEEE 39-bus system is done in PSCAD/EMTDC software whereas ESPRIT and MP algorithms are implemented in MATLAB. Comparative analysis with exiting methods are carried out for systems operating under different conditions to examine the performance of the proposed Z3PS. © 2007-2012 IEEE.