The structure-based design and discovery of the isothiazolidinone (IZD) heterocycle as a mimic of phosphotyrosine (pTyr) has led to the identification of novel IZD-containing inhibitors of protein tyrosine phosphatase 1B (PTP1B). The structure-activity relationships (SARs) of peptidic IZD-containing inhibitors of PTP1B are described along with a novel synthesis of the aryl-IZD fragments via a Suzuki coupling. The SAR revealed the saturated IZD heterocycle (42) is the most potent heterocyclic pTyr mimetic compared to the unsaturated IZD (25), the thiadiazolidinone (TDZ) (38), and the regioisomeric unsaturated IZD (31). The X-ray crystal structures of 11c and 25 complexed with PTP1B were solved and revealed nearly identical binding interactions in the active site. Ab initio calculations effectively explain the strong binding of the (S)-IZD due to the preorganized binding of the IZD in its low energy conformation.