Protein tyrosine phosphatase 1B (PTP1B) plays a key role as a negative regulator of insulin and leptin signalling and is therefore considered to be an important molecular target for the treatment of type 2 diabetes and obesity. Detailed structural information about the structure of PTP1B, including the conformation and flexibility of active-site residues as well as the water-molecule network, is a key issue in understanding ligand binding and enzyme kinetics and in structure-based drug design. A 1.95 A apo PTP1B structure has been obtained, showing four highly coordinated water molecules in the active-site pocket of the enzyme; hence, the active site is highly solvated in the apo state. Three of the water molecules are located at positions that approximately correspond to the positions of the phosphate O atoms of the natural substrate phosphotyrosine and form a similar network of hydrogen bonds. The active-site WPD-loop was found to be in the closed conformation, in contrast to previous observations of wild-type PTPs in the apo state, in which the WPD-loop is open. The closed conformation is stabilized by a network of hydrogen bonds. These results provide new insights into and understanding of the active site of PTP1B and form a novel basis for structure-based inhibitor design.