Protein tyrosine phosphatases (PTPs) regulate a broad range of cellular processes including proliferation, differentiation, migration, apoptosis, and immune responses. Dysfunction of PTP activity is associated with cancers, metabolic syndromes, and autoimmune disorders. Consequently, small molecule PTP inhibitors should serve not only as powerful tools to delineate the physiological roles of these enzymes in vivo but also as lead compounds for therapeutic development. We describe a novel stepwise fluorophore-tagged combinatorial library synthesis and competitive fluorescence polarization screening approach that transforms a weak and general PTP inhibitor into an extremely potent and selective TC-PTP inhibitor with highly efficacious cellular activity. The result serves as a proof-of-concept in PTP inhibitor development, as it demonstrates the feasibility of acquiring potent, yet highly selective, cell permeable PTP inhibitory agents. Given the general nature of the approach, this strategy should be applicable to other PTP. targets.