Protein tyrosine phosphatase 1B (PTP1B) is a negative regulator of the insulin signal transduction cascade, initiated when insulin binds to the insulin receptor. PTP1B-deficient mice are more sensitive to insulin, and have improved glycemic control and resistance to diet-induced obesity than wild-type control mice. Diabetic mice treated with PTP1B antisense oligonucleotides intraperitoneally have lower PTP1B protein levels in liver and fat, reduced plasma insulin, blood glucose and hemoglobin A1c (HbA1c) levels. These studies validate PTP1B as a promising drug discovery target for the treatment of insulin resistance, diabetes and obesity. Herein we review the recent advances in the structure-based design of potent and selective small molecule inhibitors of PTP1B, and discuss th e challenge of developing compounds with improved cell permeability and bioavailability.