Utilizing structure-based design, we have previously demonstrated that it is possible to obtain selective inhibitors of protein-tyrosine phosphatase 1B (PTP1B). A basic nitrogen was introduced into a general PTP inhibitor to form a salt bridge to Asp48 in PTP1B and simultaneously cause repulsion in PTPs containing an asparagine in the equivalent position Iversen, L. F., et al. (2000) J. Biol. Chem. 275, 10300-10307. Further, we have recently demonstrated that Gly259 in PTP1B forms the bottom of a gateway that allows easy access to the active site for a broad range of substrates, while bulky residues in the same position in other PTPs cause steric hindrance and reduced substrate recognition capacity Peters, G. H., et al. (2000) J. Biol. Chem. 275, 18201-18209. The current study was undertaken to investigate the feasibility of structure-based design, utilizing these differences in accessibility to the active site among various PTPs. We show that a general, low-molecular weight PTP inhibitor can be developed into a highly selective inhibitor for PTP1B and TC-PTP by introducing a substituent, which is designed to address the region around residues 258 and 259. Detailed enzyme kinetic analysis with a set of wild-type and mutant PTPs, X-ray protein crystallography, and molecular modeling studies confirmed that selectivity for PTP1B and TC-PTP was achieved due to steric hindrance imposed by bulky position 259 residues in other PTPs.