N-acetyl-beta-D-glucopyranosylamine (NAG) is a potent inhibitor (Ki=32 microM) of glycogen phosphorylase b (GPb), and has been employed as a lead compound for the structure-based design of new analogues, in an effort to utilize its potential as a hypoglycaemic agent. Replacement of the acetamido group by azidoacetamido group resulted in an inhibitor, N-azidoacetyl-beta-D-glucopyranosylamine (azido-NAG), with a Ki value of 48.7 microM, in the direction of glycogen synthesis. In order to elucidate the mechanism of inhibition, we determined the ligand structure in complex with GPb at 2.03 A resolution, and the structure of the fully acetylated derivative in the free form. The molecular packing of the latter is stabilized by a number of bifurcated hydrogen bonds of which the one involving a bifurcated C-H...N...H-C type hydrogen bonding is rather unique in organic azides. Azido-NAG can be accommodated in the catalytic site of T-state GPb at approximately the same position as that of NAG and stabilizes the T-state conformation of the 280 s loop by making several favourable contacts to residues of this loop. The difference observed in the Ki values of the two analogues can be interpreted in terms of desolvation effects, subtle structural changes of protein residues and changes in water structure.