The paper presents the control algorithm dedicated to a variable speed energy conversion system in a small hydropower plant. The energy conversion system consists of propeller water turbine, permanent magnet synchronous generator and power electronic converter. The main purpose of the algorithm, apart from the water level controlling, is to achieve the highest possible efficiency of the system. The changeable hydrological conditions, in the form of significant variations in a river’s flow and head throughout the year, requires to operate in a wide water flow and head range. Applied optimizing techniques guarantee maximal average efficiency independently of hydrological condition changes, by constant searching of the optimal operation parameters. The presented control method is implemented and tested in the energy conversion model, created in the Matlab/Simulink software. All characteristics and parameters were identified on the real small hydropower plant and on the special laboratory model.