The object of this research is to optimize the overall power system performance using FACTS devices. Particularly, it is intended to improve the reliability, and the performance of the power system considering steady state operating condition as well as the system subjected to small and large disturbances. The methodology proposed to achieve this goal corresponds to an enhanced particle swarm optimizer (Enhanced-PSO) that is proven in this work to have several advantages, in terms of accuracy and computational effort, as compared with other existing methods. Once the performance of the Enhanced PSO is verified, a multi-stage PSO-based optimization framework is proposed for optimizing the power system reliability (N-1 contingency criterion). The algorithm finds optimal settings for present infrastructure (generator outputs, transformers tap ratios and capacitor banks settings) as well as optimal control references for distributed static series compensators (DSSC) and optimal locations, sizes and control settings for static compensator (STATCOM) units. Finally, a two-stage optimization algorithm is proposed to improve the power system performance in steady state conditions and when small and large perturbations are applied to the system. In this case, the algorithm provides optimal control references for DSSC modules, optimal location and sizes for capacitor banks, and optimal location, sizes and control parameters for STATCOM units (internal and external controllers), so that the loadability and the damping of the system are maximized at minimum cost. Simulation results throughout this research show a significant improvement of the power system reliability and performance after the system is optimized.