Protein tyrosine phosphatase non-receptor type 5 (PTPN5, STEP) is a brain specific phosphatase that regulates synaptic function and plasticity by modulation of N-methyl-d-aspartate receptor (NMDAR) and α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid receptor (AMPAR) trafficking. Dysregulation of STEP has been linked to neurodegenerative and neuropsychiatric diseases, highlighting this enzyme as an attractive therapeutic target for drug discovery. Selective targeting of STEP with small molecules has been hampered by high conservation of the active site among protein tyrosine phosphatases. We report the discovery of the first small molecule allosteric activator for STEP that binds to the phosphatase domain. Allosteric binding is confirmed by both X-ray and 15N NMR experiments, and specificity has been demonstrated by an enzymatic test cascade. Molecular dynamics simulations indicate stimulation of enzymatic activity by a long-range allosteric mechanism. To allow the scientific community to make use of this tool, we offer to provide the compound in the course of an open innovation initiative.