This paper presents the application of the Lyapunov direct method (LDM) for dynamic stability assessment of a single wind turbine generator (WTG) system connected to an infinite bus under widely varying loading conditions. The proposed method is used to assess the dynamic stability for a given operating condition of P and Q very easily without calculating the overall system eigenvalues. In fact, the use of dominant complex eigenvalue loci plotted in the s-plane as constant P and Q contours to obtain the dynamic stability information for a given operating condition of the WTG system may not give the true picture because of complex surface shapes. The proposed method can be used to obtain the optimum reactive power loading for a given real power loading condition, corresponding to which the transient response of the system would be the best, by calculating a parameter defined as the dynamic stability measure. The system performance curves presented (V Q curves for constant P) enable not only the optimum reactive power loading for a particular real power loading to be identified but also give some indication of the total optimal range in which it can be chosen from the point of view of fast transient response. Several cases are examined and the effects of the system and control parameters on the dynamic stability of the wind turbine generator are discussed. It is observed that the proposed LDM is computationally more efficient than the conventional eigenvalue analysis for dynamic stability assessment of the WTG system.