Small molecules that can be used to specifically control the activity of cellular gene products are key tools in chemical biology. Here, we present a scanning-insertional-mutagenesis approach to identify protein tyrosine phosphatase (PTP) mutants whose activities can be selectively modulated by a small molecule. A six-amino-acid, cysteine-rich ligand-binding peptide, known to specifically bind a biarsenical fluorescein derivative (FlAsH), was inserted site-specifically at twelve locations in the catalytic domain of T-cell PTP (TCPTP). The majority of the resulting insertion mutants expressed efficiently as soluble enzymes and retained catalytic activities comparable to wild-type levels in the absence of the FlAsH ligand. Mutants that contain TetraCys insertions at TCPTP positions 79 and 187 demonstrated novel FlAsH-dependent inhibitor sensitivity: the catalytic activities of these constructs strongly decreased when incubated with FlAsH, compared to a no-FlAsH control. Structural analysis suggests that the inhibitory TetraCys-FlAsH complexes are acting allosterically, as positions 79 and 187 are both located in loops, distal from TCPTP's active site. These results show that insertion of TetraCys and, potentially, other ligand-biding peptides can be used to readily engineer novel allosteric sites into PTPs, a critical family of cell-signaling enzymes.