This paper discusses a modified indirect space vector pulse-width modulation (ISVPWM) technique for common mode voltage (CMV) reduction in a matrix converter (MC). The ISVPWM technique offers immense flexibility in making an intelligent choice of space vectors to not only achieve the objective of variable speed operation of the drive but also target other advanced features like reduced CMV and improved output voltage distortion. A smart use of these space vectors can result in the generation of different levels in the output voltage and this capability has been utilized to address an improvement in its distortion. The fundamentals of appropriate choice of space vectors in accordance to a new space vector diagram and its corresponding switching sequence have been developed and described in detail. The effectiveness of the algorithm is substantiated by simulations in MATLAB/Simulink and experiments on a laboratory prototype.