In the absence of a broadly effective cure for hepatitis caused by hepatitis C virus (HCV), much effort is currently devoted to the search for inhibitors of the virally encoded protease NS3. This chymotrypsin-like serine protease is required for the maturation of the viral polyprotein, cleaving it at the NS3-NS4A, NS4A-NS4B, NS4B-NS5A, and NS5A-NS5B sites. In the course of our studies on the substrate specificity of NS3, we found that the products of cleavage corresponding to the P6-P1 region of the substrates act as competitive inhibitors of the enzyme, with IC50s ranging from 360 to 1 microM. A detailed study of product inhibition by the natural NS3 substrates is described in the preceding paper [Steinkühler, C., et al. (1997) Biochemistry 37, 8899-8905]. Here we report the results of a study of the structure-activity relationship of the NS3 product inhibitors, which suggest that the mode of binding of the P region-derived products is similar to the ground-state binding of the corresponding substrates, with additional binding energy provided by the C-terminal carboxylate. Optimal binding requires a dual anchor: an "acid anchor" at the N terminus and a "P1 anchor" at the C-terminal part of the molecule. We have then optimized the sequence of the product inhibitors by using single mutations and combinatorial peptide libraries based on the most potent natural product, Ac-Asp-Glu-Met-Glu-Glu-Cys-OH (Ki = 0.6 microM), derived from cleavage at the NS4A-NS4B junction. By sequentially optimizing positions P2, P4, P3, and P5, we obtained several nanomolar inhibitors of the enzyme. These compounds are useful both as a starting point for the development of peptidomimetic drugs and as structural probes for investigating the substrate binding site of NS3 by modeling, NMR, and crystallography.