This paper proposes a protection scheme which utilizes modern voltage-source converters as fast-acting current-limiting circuit breakers. This paper investigates the main challenges of detecting and localizing a fault, and interrupting it as quickly as possible in a multiterminal dc system. A system protection scheme consisting of smart relays associated with converters has been developed. The protection relays monitor local quantities to detect and isolate disturbances/faults. It is shown that overcurrent-based schemes can be adopted for these relays to meet the fast response requirements. The effectiveness of the proposed protection scheme is illustrated through simulations.