Thanks Ivan for providing answers to my queries.

I understand the code. I am unable bind the unit category after I change the type from string to custom class.

Where could be the problem.

<Grid>
    <Grid.Resources>
        <local:ComboSourceConverter x:Key="cscconv" />

        <Style x:Key="UnitCategoryStyle" TargetType="{x:Type igEditors:XamComboEditor}">
            <Setter Property="ItemsSource" Value="{Binding Path=DataContext.UnitCategories, RelativeSource={RelativeSource FindAncestor, AncestorType={x:Type Window}}}" />
            <Setter Property="SelectedItem" Value ="{Binding Path=DataItem.UnitCategory}" />
            <Setter Property="DisplayMemberPath" Value="Name" />
        </Style>
        
        <Style x:Key="UnitStyle" TargetType="{x:Type igEditors:XamComboEditor }">
            <Setter Property="ItemsSource" Value="{Binding Path=DataItem.UnitCategory, Converter={StaticResource cscconv}}" />
        </Style>

    </Grid.Resources>
    <igWPF:XamDataGrid DataSource="{Binding data}" CellChanged="XamDataGrid_CellChanged">
        <igWPF:XamDataGrid.FieldLayoutSettings>
            <igWPF:FieldLayoutSettings AutoGenerateFields="False" />
        </igWPF:XamDataGrid.FieldLayoutSettings>
        <igWPF:XamDataGrid.FieldLayouts>
            <igWPF:FieldLayout>
                <igWPF:FieldLayout.Fields>
                    <igWPF:Field Name="Item"></igWPF:Field>
                    <igWPF:Field Name="UnitCategory">
                        <igWPF:Field.Settings>
                            <igWPF:FieldSettings EditorStyle="{StaticResource UnitCategoryStyle}" />
                        </igWPF:Field.Settings>
                    </igWPF:Field>
                    <igWPF:Field Name="Unit">
                        <igWPF:Field.Settings>
                            <igWPF:FieldSettings EditorStyle="{StaticResource UnitStyle}" />
                        </igWPF:Field.Settings>
                    </igWPF:Field>
                </igWPF:FieldLayout.Fields>
            </igWPF:FieldLayout>
        </igWPF:XamDataGrid.FieldLayouts>
    </igWPF:XamDataGrid>
</Grid>

Here is view model & model 

public class ViewModel : INotifyPropertyChanged
{
    public ObservableCollection<DataModel> data { get; set; }
    public List<UnitCategory> UnitCategories { get; set; }
    public static List<string> WeightUnits { get; set; }
    public static List<string> DistanceUnits { get; set; }

    public ViewModel()
    {
        this.data = new ObservableCollection<DataModel>();

        this.UnitCategories = new List<UnitCategory>();

        UnitCategory u1 = new UnitCategory();
        u1.Name = "Wt";

        UnitCategory u2 = new UnitCategory();
        u2.Name = "Dt";


        this.UnitCategories.Add(u1);
        this.UnitCategories.Add(u2);



        WeightUnits = new List<string>()
        {
            "mg",
            "g",
            "kg"
        };

        DistanceUnits = new List<string>()
        {
            "cm",
            "m",
            "km"
        };

        DataModel data1 = new DataModel();
        data1.Item = "Item 1";
      
        DataModel data2 = new DataModel();
        data2.Item = "Item 2";
 
        this.data.Add(data1);
        this.data.Add(data2);
    }

    public event PropertyChangedEventHandler PropertyChanged;
    protected void OnPropertyChanged([CallerMemberName] string propertyName = "")
    {
        if (PropertyChanged != null)
            PropertyChanged(this, new PropertyChangedEventArgs(propertyName));
    }
}

public class DataModel 
{
    public string Item { get; set; }
    public UnitCategory UnitCategory { get; set; }
    public string Unit { get; set; }

    public DataModel()
    {
    }
}

public class UnitCategory
{
    public string Name { get; set; }
}

Thanks Ivan,

But why I am not able to clear selection of unit field when user changes unit category.

<Style x:Key="cvp1"
                   TargetType="{x:Type igWPF:CellValuePresenter}">
                <Setter Property="Template">
                    <Setter.Value>
                        <ControlTemplate TargetType="{x:Type igWPF:CellValuePresenter}">
                            <igEditors:XamComboEditor SelectedItem="{Binding DataItem.Unit, Mode=TwoWay, UpdateSourceTrigger=PropertyChanged}"
                                                      ItemsSource="{Binding Path=DataItem.UnitCategory, 
                                                      Converter={StaticResource cscconv}}">
                            </igEditors:XamComboEditor>
                        </ControlTemplate>
                    </Setter.Value>
                </Setter>


            </Style>

            <Style x:Key="cvp2"
                   TargetType="{x:Type igWPF:CellValuePresenter}">
                <Setter Property="Template">
                    <Setter.Value>
                        <ControlTemplate TargetType="{x:Type igWPF:CellValuePresenter}">
                            <igEditors:XamComboEditor SelectedItem="{Binding DataItem.UnitCategory, Mode=TwoWay, UpdateSourceTrigger=PropertyChanged}"
                                                      ItemsSource="{Binding Path=DataContext.UnitCategories, 
                                                      RelativeSource={RelativeSource FindAncestor, AncestorType={x:Type Window}}}">
                            </igEditors:XamComboEditor>
                        </ControlTemplate>
                    </Setter.Value>
                </Setter>
            </Style>

I used 2 way binding. The problem is after unit category change -> unit shows old value. Unit selection should be empty.