With the intensified demand for enhanced harmonic profile of output voltage, better power quality, reduced dv/dt stress of devices and minimal filter requirement, multilevel inverters (MLIs) have emerged as a viable solution in renewable energy applications. In the conventional MLI, the order of device count, as well as control complexity, will increase with respect to the number of voltage levels. Moreover, this higher order of semiconductor devices may increase the chance of failure rate, which degrades the reliability of the inverter. To address these issues, in this article a 1-Φ fault-tolerant MLI topology is proposed for multi-string photovoltaic (PV) applications with reduced device count as well as improved reliability. This topology required four isolated DC sources with a voltage magnitude of Vdc/4 (where Vdc is the voltage requirement for the conventional neutral point clamped MLI), which are realized with multiple PV strings. The proposed MLI enhances the reliability of the system in terms of switch open circuit failures as well as source failures. Moreover, as compared to other conventional MLIs, the proposed MLI topology has the energy balancing capability between sources during partial shading condition of PV panels. The mathematical analysis of energy balancing between the DC sources is also presented in this article. The proposed 1-Φ MLI has been analyzed for various source failures and/or switch open circuit failures using MATLAB/Simulink as well as by implementing the laboratory prototype. © 2021 John Wiley & Sons Ltd