Diabetes mellitus is a systemic disease responsible for morbidity in the western world and is gradually becoming prevalent in developing countries too. The prevalence of diabetes is rapidly increasing in industrialized countries and type 2 diabetes accounts for 90% of the disease. Insulin resistance is a major pathophysiological factor in the development of type 2 diabetes, occurring mainly in muscle, adipose tissues, and liver leading to reduced glucose uptake and utilization and increased glucose production. The prevalence and rising incidence of diabetes emphasized the need to explore new molecular targets and strategies to develop novel antihyperglycemic agents. Protein Tyrosine Phosphatase 1B (PTP 1B) has recently emerged as a promising molecular level legitimate therapeutic target in the effective management of type 2 diabetes. PTP 1B, a cytosolic nonreceptor PTPase, has been implicated as a negative regulator of insulin signal transduction. Therefore, PTP 1B inhibitors would increase insulin sensitivity by blocking the PTP 1B-mediated negative insulin signaling pathway and might be an attractive target for type 2 diabetes mellitus and obesity. With X-ray crystallography and NMR-based fragment screening, the binding interactions of several classes of inhibitors have been elucidated, which could help the design of future PTP 1B inhibitors. The drug discovery research in PTP 1B is a challenging area to work with and many pharmaceutical organizations and academic research laboratories are focusing their research toward the development of potential PTP 1B inhibitors which would prove to be a milestone for the management of diabetes.