Protein tyrosine phosphatase 1B (PTP1B) plays important roles in down-regulation of insulin signaling. Although it has been established as a potential therapeutic target for the treatment of diabetes and obesity, the finding of pharmaceutically acceptable inhibitors remains challenging. PTP1B is regulated by reactive oxygen species (ROS) produced in response to insulin. The reversibly oxidized form of this enzyme (PTP1B-OX) is inhibited and undergoes profound conformational changes at the active site. We hypothesized that a conformation-sensor antibody that recognizes PTP1B-OX may stabilize the inactive state and inhibit phosphatase activity. We isolated PTP1B-OX-specific single chain variable fragments (scFvs) from an antibody phage display library. These scFvs displayed significant inhibition of the reactivation of PTP1B-OX by reducing agent, but did not directly inhibit the reduced, wild type enzyme. Selected scFvs bind to PTP1B-OX, but not to PTP1B in its reduced active state, both in vitro and when expressed in 293T cells as intracellular antibodies or"intrabodies". Expression of the intrabody enhanced and extended insulin-induced tyrosyl phosphorylation of the β-subunit of the insulin receptor and its substrate IRS-1. PTP1B-OX-specific intrabody also caused significant enhancement of signaling downstream of the insulin receptor, as revealed by increased PKB/AKT phosphorylation in insulin-stimulated cells. These effects on signaling were diminished when catalase was ectopically co-expressed to quench cellular H2O2. Our data suggest that conformation-sensor scFvs can be used as potential inhibitors of PTP1B by stabilizing the transiently oxidized and inactivated form of the enzyme. Therefore, it may be possible to stabilize the oxidized, inactive form of PTP1B with appropriate therapeutic molecules that mimic the effects of these antibodies as a new approach for PTP-directed drug development.