Loss of Protein Tyrosine Phosphatase 1B (PTP 1B) activity is known to enhance insulin sensitivity and resistance to weight gain. So potent and orally active PTP1B inhibitors could be potential pharmacological agents for the treatment of Type 2 diabetes and obesity. Classification models of PTP1B inhibitors are developed using a data set containing 128 compounds. Their inhibitory concentrations ranged from -1.59 to 1.68 log units. Initially a two-class (active, inactive) problem is tackled using a number of different methods. The data set was divided into active and inactive classes on the basis of inhibitory activity of the compounds. Molecular structure-based descriptors were calculated and used in the model development. Descriptors encoding the flexibility of the molecules were investigated. Classification models were generated using k-nearest neighbors (k-NN), linear discriminant analysis (LDA), and radial basis function neural network (RBFNN). All models are tested using an external prediction set, compounds not used anywhere during the model development procedure. A five-descriptor model is developed that produces a classification rate of 85.7% for an external prediction set. Then a three-class (active, moderately active, inactive) problem was explored. This time the data set was divided into highly active, moderate, and inactive classes on the basis of inhibitory activity of the compounds. The best classification rate achieved for an external prediction set was 85%. The classification rates achieved indicate that these models could serve as a screening mechanism, to identify potentially useful PTP 1B inhibitors. In addition multiple linear regression and computational neural network models are also developed for prediction of log IC(50) values. All QSAR models are tested using the same external prediction set.