Protein tyrosine phosphatase 1B (PTP1B) is an enzyme that downregulates the insulin receptor. Inhibition of PTP1B is expected to improve insulin action, and the design of small molecule PTP1B inhibitors to treat type II diabetes has received considerable attention. In this work, NMR-based screening identified a nonselective competitive inhibitor of PTP1B. A second site ligand was also identified by NMR-based screening and then linked to the catalytic site ligand by rational design. X-ray data confirmed that the inhibitor bound with the catalytic site in the native, "open" conformation. The final compound displayed excellent potency and good selectivity over many other phosphatases. The modular approach to drug design described in this work should be applicable for the design of potent and selective inhibitors of other therapeutically relevant protein tyrosine phosphatases.