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In this article an active defense mechanism for detecting cyber-attacks on a grid-tied PV system is discussed. The proposed defense mechanism introduces a unique random signal termed as “watermark” into the control inputs of the grid-tied inverter system. The watermark signal is then shown to propagate via the switching inverter and its components and appear in all of the measurement data employed to control the system. The proposed approach employs the measured data to construct a system identification model, followed by two statistical tests (Test-1 and Test-2) that are designed to accurately flag cyber-attacks. The proposed approach is shown to rapidly detect any malicious manipulation of measurement data such as false data injection, record and replay, etc. from malicious actors that would like to gain control of the the grid tied inverter and/or disturb its operation to potentially cause greater damage to the grid. The robustness of the proposed active defense mechanism is tested and validated with several attack scenarios implemented on a 3 kW laboratory grid tied PV system.