This article presents a new submodule (SM) circuit that facilitates the fault-tolerant capability for modular multilevel converters (MMCs) under various internal and external faults. The proposed SM circuit ensures continued operation of the MMC subsequent to multiple SM failures and symmetrical and asymmetrical grid faults without the need for additional hardware implementation. The proposed SM circuit can be simply integrated into conventional half bridge-based MMCs by using the switching signal adapter block. The switching signal adapter unit duly assigns a switching pattern to the SMs in each arm to obtain the most efficient current path and inherent capacitor voltage balancing features. A fully modular structure, enhanced internal fault management, external fault-handling capability, and ease of expandability are the key features of the proposed SM circuit. The configuration, modeling, and gating signal pattern of an MMC that adopts the proposed SM are discussed and analyzed in detail. Time-domain simulation studies using detailed nonlinear models validate the effectiveness of the proposed configuration and its principle of operation in an MMC-HVDC system under various fault conditions. In addition, hardware-in-the-loop test results confirm the feasibility of hardware implementation of the proposed SM circuit.