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.