We have applied a variational algorithm based on projected entangled pair states (PEPS) to a two dimensional frustrated spin system, the spin-1/2 antiferromagnetic Heisenberg model on the Shastry-Sutherland lattice. We use the class of PEPS with internal tensor dimension D=2 , the first step beyond product states (D=1 PEPS). We have found that the D=2 variational PEPS algorithm is able to capture the physics in both the valence-bond crystal and the Néel ordered state. Also the spin textures giving rise to the magnetization plateaus seen in experiments on SrCu2(BO3)(2) are well reproduced. This shows that PEPS with the smallest nontrivial internal dimension, D=2 , can provide valuable insights into frustrated spin systems.