A library of natural products and their derivatives was screened for inhibition of protein tyrosine phosphatase (PTP) 1B, which is a validated drug target for the treatment of obesity and type II diabetes. Of those active in the preliminary assay, the most promising was compound 2 containing a novel pyrrolopyrazoloisoquinolone scaffold derived by treating radicicol (1) with hydrazine. This nitrogen-atom augmented radicicol derivative was found to be PTP1B selective relative to other highly homologous nonreceptor PTPs. Biochemical evaluation, molecular docking, and mutagenesis revealed 2 to be an allosteric inhibitor of PTP1B with a submicromolar Ki. Cellular analyses using C2C12 myoblasts indicated that 2 restored insulin signaling and increased glucose uptake.