Currently, small islands are facing an energy supply shortage, which has led to considerable concern. Establishing an island microgrid is a relatively good solution to the problem. However, high investment costs restrict its application. In this paper, micro pumped storage (MPS) is used as an energy storage system (ESS) for islands with good geographical conditions, and deferrable appliance is treated as the virtual power source which can be used in the planning and operational processes. Household acceptance of demand response (DR) is indicated by the demand response participation degree (DRPD), and a sizing optimization model for considering the demand response of household appliances in an island microgrid is proposed. The particle swarm optimization (PSO) is used to obtain the optimal sizing of all major devices. In addition, the battery storage (BS) scheme is used as the control group. The results of case studies demonstrate that the proposed method is effective, and the DR of deferrable appliances and the application of MPS can significantly reduce island microgrid investment. Sensitivity analysis on the total load of the island and the water head of the MPS are conducted.