Insulin resistance in the liver and peripheral tissues together with a pancreatic cell defect are the common causes of type 2 diabetes. It is now appreciated that insulin resistance can result from a defect in the insulin receptor signaling system, at a site post binding of insulin to its receptor. Protein tyrosine phosphatases (PTPases) have been shown to be negative regulators of the insulin receptor. Inhibiton of PTPases may be an effective method in the treatment of type 2 diabetes. A series of azolidinediones has been prepared as protein tyrosine phosphatase 1B (PTP1B) inhibitors. Several compounds were potent inhibitors against the recombinant rat and human PTP1B enzymes with submicromolar IC(50) values. Elongated spacers between the azolidinedione moiety and the central aromatic portion of the molecule as well as hydrophobic groups at the vicinity of this aromatic region were very important to the inhibitory activity. Oxadiazolidinediones 87 and 88 and the corresponding acetic acid analogues 119 and 120 were the best h-PTP1B inhibitors with IC(50) values in the range of 0.12-0.3 microM. Several compounds normalized plasma glucose and insulin levels in the ob/ob and db/db diabetic mouse models.