Type 2 diabetes is increasing at an alarming rate worldwide, and there has been a considerable effort in several laboratories to identify suitable targets for the design of drugs against the disease. To this end, the protein tyrosine phosphatases that attenuate insulin signaling by dephosphorylating the insulin receptor (IR) have been actively pursued. This is because inhibiting the phosphatases would be expected to prolong insulin signaling and thereby facilitate glucose uptake and, presumably, result in a lowering of blood glucose. Targeting the IR protein tyrosine phosphatase, therefore, has the potential to be a significant disease-modifying strategy. Several protein tyrosine phosphatases (PTPs) have been implicated in the dephosphorylation of the IR. These phosphatases include PTPalpha, LAR, CD45, PTPepsilon, SHP2, and PTP1B. In most cases, there is evidence for and against the involvement of the phosphatases in insulin signaling. The most convincing data, however, support a critical role for PTP1B in insulin action. PTP1B knockout mice are not only insulin sensitive but also maintain euglycemia (in the fed state), with one-half the level of insulin observed in wild-type littermates. Interestingly, these mice are also resistant to diet-induced obesity when fed a high-fat diet. The insulin-sensitive phenotype of the PTP1B knockout mouse is reproduced when the phosphatase is also knocked down with an antisense oligonucleotide in obese mice. Thus PTP1B appears to be a very attractive candidate for the design of drugs for type 2 diabetes and obesity.