Small-molecule drugs are organic compounds affecting molecular pathways by targeting important proteins. These compounds have a low molecular weight, making them penetrate cells easily. Small-molecule drugs can be developed from leads derived from rational drug design or isolated from natural resources. A target-based drug discovery project usually includes target identification, target validation, hit identification, hit to lead and lead optimization. Understanding molecular interactions between small molecules and their targets is critical in drug discovery. Although many biophysical and biochemical methods are able to elucidate molecular interactions of small molecules with their targets, structural biology is the most powerful tool to determine the mechanisms of action for both targets and the developed compounds. Herein, we reviewed the application of structural biology to investigate binding modes of orthosteric and allosteric inhibitors. It is exemplified that structural biology provides a clear view of the binding modes of protease inhibitors and phosphatase inhibitors. We also demonstrate that structural biology provides insights into the function of a target and identifies a druggable site for rational drug design.