Protein tyrosine phosphatase 1B (PTP1B) attenuates insulin signaling by catalyzing dephosphorylation of insulin receptors (IR) and is an attractive target of potential new drugs for treating the insulin resistance that is central to type II diabetes. Several analogues of cholecystokinin(26)(-)(33) (CCK-8) were found to be surprisingly potent inhibitors of PTP1B, and a common N-terminal tripeptide, N-acetyl-Asp-Tyr(SO(3)H)-Nle-, was shown to be necessary and sufficient for inhibition. This tripeptide was modified to reduce size and peptide character, and to replace the metabolically unstable sulfotyrosyl group. This led to the discovery of a novel phosphotyrosine bioisostere, 2-carboxymethoxybenzoic acid, and to analogues that were >100-fold more potent than the CCK-8 analogues and >10-fold selective for PTP1B over two other PTP enzymes (LAR and SHP-2), a dual specificity phosphatase (cdc25b), and a serine/threonine phosphatase (calcineurin). These inhibitors disrupted the binding of PTP1B to activated IR in vitro and prevented the loss of tyrosine kinase (IRTK) activity that accompanied PTP1B-catalyzed dephosphorylation of IR. Introduction of these poorly cell permeant inhibitors into insulin-treated cells by microinjection (oocytes) or by esterification to more lipophilic proinhibitors (3T3-L1 adipocytes and L6 myocytes) resulted in increased potency, but not efficacy, of insulin. In some instances, PTP1B inhibitors were insulin-mimetic, suggesting that in unstimulated cells PTP1B may suppress basal IRTK activity. X-ray crystallography of PTP1B-inhibitor complexes revealed that binding of an inhibitor incorporating phenyl-O-malonic acid as a phosphotyrosine bioisostere occurred with the mobile WPD loop in the open conformation, while a closely related inhibitor with a 2-carboxymethoxybenzoic acid bioisostere bound with the WPD loop closed, perhaps accounting for its superior potency. These CCK-derived peptidomimetic inhibitors of PTP1B represent a novel template for further development of potent, selective inhibitors, and their cell activity further justifies the selection of PTP1B as a therapeutic target.