To support neutral non-effectively grounded distribution systems to have high reliability of power supply, this paper puts forward an approach of updating distribution system to smart grounding distribution system, of which we install Smart Grounding Control Unit (SGCU) in substation and configure distribution terminal and fault indicator with zero-sequence protection function. When a single phase to ground fault occurs, the SGCU extinguishes the arc immediately by making the faulted phase metallic grounding for a while. In case of a permanent single phase to ground fault, a resistor is connected to the neutral to significantly increase the zero-sequence current of grounding point up-stream so as to reliably locate and isolate the position of the single phase to ground fault by using zero-sequence current protection installed at distribution terminal and fault indicator. The composition and key technologies of a smart grounding distribution system are described. The innovation of correcting the error of grounding phase identification and reducing the transient process during grounding switching by soft switching control is detailed. An example is given to show the feasibility and effectiveness of the proposed methodology. This project is supported by National Natural Science Foundation of China (No. U1766208)