Protein tyrosine phosphatase 1B (PTP-1B) has been implicated in the regulation of the insulin receptor. Dephosphorylation of the insulin receptor results in decreased insulin signaling and thus decreased glucose uptake. PTP-1B-/- mice have increased insulin sensitivity and are resistant to weight gain when fed a high fat diet, validating PTP-1B as a potential target for the treatment of type 2 diabetes. Many groups throughout the world have been searching for selective inhibitors for PTP-1B, and most of them target inhibitors to PTP-1B-(1-298), the N-terminal catalytic domain of the enzyme. However, the C-terminal domain is quite large and could influence the activity of the enzyme. Using two constructs of PTP-1B and a phosphopeptide as substrate, steady state assays showed that the presence of the C-terminal domain decreased both the Km and the k(cat) 2-fold. Pre-steady state kinetic experiments showed that the presence of the C-terminal domain improved the affinity of the enzyme for a phosphopeptide 2-fold, primarily because the off-rate was slower. This suggests that the C-terminal domain of PTP-1B may contact the phosphopeptide in some manner, allowing it to remain at the active site longer. This could be useful when screening libraries of compounds for inhibitors of PTP-1B. A compound that is able to make contacts with the C-terminal domain of PTP-1B would not only have a modest improvement in affinity but may also provide for specificity over other phosphatases.