Protein-tyrosine kinases (PTKs) and their associated signaling pathways are crucial for the regulation of numerous cell functions including growth, mitogenesis, motility, cell-cell interactions, metabolism, gene transcription, and the immune response. Since tyrosine phosphorylation is reversible and dynamic in vivo, the phosphorylation states of proteins are governed by the opposing actions of PTKs and protein-tyrosine phosphatases (PTPs). In this light, both PTKs and PTPs play equally important roles in signal transduction in eukaryotic cells, and comprehension of mechanisms behind the reversible pTyr-dependent modulation of protein function and cell physiology must necessarily encompass the characterization of PTPs as well as PTKs. In spite of the large number of PTPs identified to date and the emerging role played by PTPs in disease, a detailed understanding of the role played by PTPs in signaling pathways has been hampered by the absence of PTP-specific agents. Such PTP-specific inhibitors could potentially serve as useful tools in determining the physiological significance of protein tyrosine phosphorylation in complex cellular signal transduction pathways and may constitute valuable therapeutics in the treatment of several human diseases. The goal of this review is therefore to summarize current understandings of PTP structure and mechanism of catalysis and the relationship of these to PTP inhibitor development. The review is organized such that enzyme structure is covered first, followed by mechanisms of catalysis then PTP inhibitor development. In discussing PTP inhibitor development, nonspecific inhibitors and those obtained by screening methods are initially presented with the focus then shifting to inhibitors that utilize a more structure-based rationale.