PTP-1B represents an attractive target for the treatment of type 2 diabetes and obesity. Given the role that protein phosphatases play in the regulation of many biologically relevant processes, inhibitors against PTP-1B must be not only potent, but also selective. It has been extremely difficult to synthesize inhibitors that are selective over the highly homologous TCPTP. We have successfully exploited the conservative Leu 119 to Val substitution between the two enzymes to synthesize a PTP-1B inhibitor that is an order of magnitude more selective over TCPTP. Structural analyses of PTP-1B/inhibitor complexes show a conformation-assisted inhibition mechanism as the basis for selectivity. Such an inhibitory mechanism may be applicable to other homologous enzymes.The quest for agents that can intervene in type 2 diabetes continues to be a major research focus and challenge in many laboratories. As impaired insulin action is an underlying mechanism in type 2 diabetes, the insulin signaling pathway has naturally been the focus of research in attempts to identify suitable therapeutic target(s) for drug intervention against the disease. Insulin signaling begins with the activation of the insulin receptor (IR) via tyrosine phosphorylation and culminates in the uptake of glucose into cells by the glucose transporter, Glut4 (1). The activated IR must then be deactivated and returned to a basal state, a process that is believed to involve protein-tyrosine phosphatase-1B (PTP-1B).4 PTP-1B has been shown to directly interact with the activated insulin receptor (2-6). Disruption of the gene that codes for PTP-1B in mice results in sensitivity to insulin and also increased resistance to diet-induced obesity (7,8). This phosphatase is therefore a very attractive therapeutic target for the treatment not only of type 2 diabetes but also of obesity. Predictably, there has been an intense research effort by many groups to identify potent and selective inhibitors of PTP-1B (for recent reviews, see Refs. 9 and 10). PTP-1B belongs to the proteintyrosine phosphatase (PTP) superfamily of enzymes, which includes ϳ100 members involved in signal transduction and regulation of cellular processes such as growth, differentiation, and proliferation. Inhibitors against the enzyme must thus be not only potent but also selective. Sequence alignment of amino acids residues within the PTPs catalytic domain shows that, in general, all phosphatases have less than 40% identity to PTP-1B: a remarkable exception is the T-cell protein-tyrosine phosphatase (TCPTP), which has a 72% identity (11)(12)(13)(14). Inhibitors that target PTP-1B and incorporate previously identified selectivity determinants (15-17) are generally selective (Ͼ30-fold) over all PTPs tested but are equipotent on TCPTP. Although it is not evident that co-inhibition of TCPTP (with PTP-1B) will result in serious adverse effects, mice lacking the TCPTP gene die within 3-5 weeks after birth from defects in hematopoiesis and immune function (18). Hence, it is highly desirable to design PTP-1...