We have previously shown that a small peptide bearing the hydrolytically stable phosphotyrosyl (pTyr) mimetic, (difluorophosphonomethyl)phenylalanine (F(2)Pmp), is an extremely potent inhibitor of PTP1B, with an IC50 value of 100 nM [Burke, T. R., Kole, H. K., & Roller, P. P. (1994) Biochem. Biophys. Res. Commun. 204, 129-134]. We further demonstrated that removal of the peptide portion and incorporation of the difluorophosphonomethyl moiety onto a naphthalene ring system, but not a phenyl ring system, resulted in good inhibitory potency [Kole, H. K., Smyth, M. S., Russ, P. L., & Burke, T. R., Jr. (1995) Biochem. J. 311, 1025-1031]. In order to understand the structural basis for this inhibition, and to aid in the design of further analogs, we solved the X-ray structure of [1,1-difluoro-1-(2-naphthalenyl)-methyl]phosphonic acid (6) complexed within the catalytic site of PTP1B, solved to 2.3 Angstrom resolution. In addition to showing the manner in which the phosphonate group is held within the catalytic site, the X-ray structure also revealed extensive hydrophobic interactions with the naphthalene ring system, beyond that possible with an analog bearing a single phenyl ring. It is further evident that, of the two fluorine atoms, the pro-R alpha-fluorine interacts with the enzyme to a significantly greater degree than the pro-S alpha-fluorine, forming a hydrogen bond to Phe 182. On the basis of a computer-assisted molecular modeling analysis, it was determined that addition of a hydroxyl to the naphthyl 4-position, giving [1,1-difluoro-1-[2-(4-hydroxynaphthalenyl)] methyl]phosphonic acid (8), could potentially replace a water molecule situated in the PTP1B . 6 complex, thereby allowing new hydrogen-bonding interactions with Lys 120 and Tyr 46. Compound 8 was therefore prepared and found to exhibit a doubling of affinity (K-i = 94 mu M) relative to parent unsubstituted 6 (K-i = 179 mu M), supporting, in principle, the development of high-affinity ligands based on molecular modeling analysis of the enzyme-bound parent.