A novel distribution network structure， the microgrid， is an integral part of the smart grid capable of effectively improving user security and reliability. According to the characteristics of the burgeoning smart microgrid， a reliability algorithm for distribution network with smart microgrid is concluded. The impact of microgrid on the reliability of distribution network is assessed by analyzing the improvement of reliability parameters. With this algorithm， the reliability of the test system is achieved， with which， some recommendations about location and capacity of the microgrid are made.