<p>Grid-forming (GFM) inverters are widely used in microgrid to provide voltage and frequency support for the system. To increase the inertia and damping of microgrid systems, virtual synchronous generator (VSG) control, which simulates the output characteristics of conventional synchronous generators (SGs), has attracted considerable attention. However, unlike SGs, VSG has to limit its output current amplitude during faults, which can harm its transient stability after fault inception and clearance. To address this challenge, a transient stability enhancement method for grid-forming inverter-interfaced distributed generators (GFM-IIDGs) is developed in this paper. A fault model of VSG is first constructed with adaptive virtual impedance utilized to limit the fault current amplitude. The instability phenomenon during fault occurrence and clearance caused by the introduction of virtual impedance is analyzed, and the instability mechanism is elaborated using the power angle characteristic curve and phase portrait. After that, a transient stability enhancement control strategy based on power reference adjustment in combination with the adaptive virtual impedance method is proposed. The MATLAB/Simulink and HiL simulation results prove that this method can effectively limit VSG’s fault current amplitude and improve the transient stability of the system during and after a fault.</p>