Activating mutations in PTPN11 (encoding SHP2), a protein tyrosine phosphatase (PTP) that plays an overall positive role in growth factor and cytokine signaling, are directly associated with the pathogenesis of Noonan syndrome and childhood leukemias. Identification of SHP2-selective inhibitors could lead to the development of new drugs that ultimately serve as treatments for PTPN11-associated diseases. As the catalytic core of SHP2 shares extremely high homology to those of SHP1 and other PTPs that play negative roles in cell signaling, to identify selective inhibitors of SHP2 using computer-aided drug design, we targeted a protein surface pocket that is adjacent to the catalytic site, is predicted to be important for binding to phosphopeptide substrates, and has structural features unique to SHP2. From computationally selected candidate compounds, #220-324 effectively inhibited SHP2 activity with an IC50 of 14 μmol/L. Fluorescence titration experiments confirmed its direct binding to SHP2. This active compound was further verified for its ability to inhibit SHP2-mediated cell signaling and cellular function with minimal off-target effects. Furthermore, mouse myeloid progenitors with the activating mutation (E76K) in PTPN11 and patient leukemic cells with the same mutation were more sensitive to this inhibitor than wild-type cells. This study provides evidence that SHP2 is a "druggable" target for the treatment of PTPN11-associated diseases. As the small-molecule SHP2 inhibitor identified has a simple chemical structure, it represents an ideal lead compound for the development of novel anti-SHP2 drugs. Mol Cancer Ther; 12(9); 1738-48. ©2013 AACR.