Benzothiazole benzimidazole (S)-isothiazolidinone ((S)-IZD) derivatives 5 were discovered through a peptidomimetic modification of the tripeptide (S)-IZD protein tyrosine phosphatase 1B (PTP1B) inhibitor 1. These derivatives are potent, competitive, and reversible inhibitors of PTP1B with improved caco-2 permeability. An X-ray co-crystal structure of inhibitor 5/PTP1B at 2.2A resolution demonstrated that the benzothiazole benzimidazole forms bi-dentate H-bonds to Asp48, and the benzothiazole interacts with the surface of the protein in a solvent exposed region towards the C-site. The design, synthesis, and SAR of this novel series of benzothiazole benzimidazole containing (S)-IZD inhibitors of PTP1B are presented herein.