Lymphoid-tyrosine phosphatase (Lyp), encoded by the PTPN22 gene, is a member of the protein tyrosine phosphatase family enzymes. Human genetics studies have shown that a single-nucleotide polymorphism in PTPN22 is often mutated in patients suffering from autoimmune diseases such as type 1 diabetes, rheumatoid arthritis, and systemic lupus erythematosis. Because of its critical role in the regulation of T-cell Receptor (TCR) signaling pathways, Lyp recently emerged as a candidate target for therapy of autoimmune diseases. Herein, we review the structure and splice isoforms of Lyp, the biochemistry of the disease-predisposing allele, discuss the function of the phosphatase in TCR signaling and the association with human autoimmune diseases. Especially, we summarized recent progress in the development of Lyp inhibitors, intending to provide a basis for the Lyp-based treatment of autoimmunity. Moreover, the emphasis and direction for future study of Lyp in autoimmune diseases were prospected.