This paper presents an algorithm for detection, classification, and characterization of voltage sags and swells in electricity networks using three-phase voltage ellipse parameters. The proposed method employs the instantaneous magnitude of three-phase voltage signals in three axes, which are separated from each other by 120°. Thus, the resultant rotating vector, namely, the three-phase voltage vector, traces an ellipse. Then, the parameters of the ellipse, which include minor axis, major axis, and inclination angle, are used to develop the proposed algorithm for classification and characterization of voltage sags and swells. The proposed method is validated using real data of the IEEE working group and some measured real data of the Belgian transmission grid. The method is further tested for the sags and swells generated due to balanced and unbalanced faults at different buses, in test distribution networks (radial and mesh type) embedded with distributed generation and in a practical distribution network of Australia. This paper also demonstrates the proposed algorithm as a real-time sag/swell monitoring tool.