Small molecular PD‐1 inhibitors are lacking in current immuno‐oncology clinic. PD‐1/PD‐L1 antibody inhibitors currently approved for clinical usage block interaction between PD‐L1 and PD‐1 to enhance cytotoxicity of CD8+ cytotoxic T lymphocyte (CTL). Whether other steps along the PD‐1 signaling pathway can be targeted remains to be determined. Here, we report that methylene blue (MB), an FDA‐approved chemical for treating methemoglobinemia, potently inhibits PD‐1 signaling. MB enhances the cytotoxicity, activation, cell proliferation, and cytokine‐secreting activity of CTL inhibited by PD‐1. Mechanistically, MB blocks interaction between Y248‐phosphorylated immunoreceptor tyrosine‐based switch motif (ITSM) of human PD‐1 and SHP2. MB enables activated CTL to shrink PD‐L1 expressing tumor allografts and autochthonous lung cancers in a transgenic mouse model. MB also effectively counteracts the PD‐1 signaling on human T cells isolated from peripheral blood of healthy donors. Thus, we identify an FDA‐approved chemical capable of potently inhibiting the function of PD‐1. Equally important, our work sheds light on a novel strategy to develop inhibitors targeting PD‐1 signaling axis. Synopsis PD‐1 inhibitors that are currently used in the clinic exhibit toxicity and limited patient response rate. This study identifies methylene blue (MB), an FDA‐approved chemical for treating methemoglobinemia, as a new potent PD‐1 inhibitor. MB activates T‐cell functions through inhibiting the recruitment of SHP2 to PD‐1. MB treatment effectively shrinks tumors in both an allograft mouse model and an autochthonous mouse model for lung cancer. MB activates human CD8+ T cells that are otherwise suppressed by PD‐1 signaling. PD‐1 inhibitors that are currently used in the clinic exhibit toxicity and limited patient response rate. This study identifies methylene blue (MB), an FDA‐approved chemical for treating methemoglobinemia, as a new potent PD‐1 inhibitor.