Coordinated tyrosine phosphorylation is essential for signalling pathways regulated by insulin and leptin. Type 2 diabetes and obesity are characterised by resistance to hormones insulin and leptin, possibly due to attenuated or diminished signalling from the receptors. Pharmacological agents capable of inhibiting the negative regulator(s) of the signalling pathways are expected to potentiate the action of insulin and leptin and therefore be beneficial for the treatment of Type 2 diabetes and obesity. A large body of data from cellular, biochemical, mouse and human genetic and chemical inhibitor studies have identified protein tyrosine phosphatase 1B (PTP1B) as a major negative regulator of both insulin and leptin signalling. In addition, evidence suggests that insulin and leptin action can be enhanced by the inhibition of PTP1B. Consequently, PTP1B has emerged as an attractive novel target for the treatment of both Type 2 diabetes and obesity. The link between PTP1B and diabetes and obesity has led to an avalanche of research dedicated to finding inhibitors of this phosphatase. With the combined use of structure and medicinal chemistry, several groups have demonstrated that it is feasible to obtain small-molecule PTP1B inhibitors with the requisite potency and selectivity. The challenge for the future will be to transform potent and selective small molecule PTP1B inhibitors into orally available drugs with desirable physicochemical properties and in vivo efficacies.