Immune checkpoint blockade is effective for some patients with cancer, but most are refractory to current immunotherapies and new approaches are needed to overcome resistance^1,2. The protein tyrosine phosphatases PTPN2 and PTPN1 are central regulators of inflammation, and their genetic deletion in either tumour cells or immune cells promotes anti-tumour immunity^3,4,5,6. However, phosphatases are challenging drug targets; in particular, the active site has been considered undruggable. Here we present the discovery and characterization of ABBV-CLS-484 (AC484), a first-in-class, orally bioavailable, potent PTPN2 and PTPN1 active-site inhibitor. AC484 treatment in vitro amplifies the response to interferon and promotes the activation and function of several immune cell subsets. In mouse models of cancer resistant to PD-1 blockade, AC484 monotherapy generates potent anti-tumour immunity. We show that AC484 inflames the tumour microenvironment and promotes natural killer cell and CD8⁺ T cell function by enhancing JAK–STAT signalling and reducing T cell dysfunction. Inhibitors of PTPN2 and PTPN1 offer a promising new strategy for cancer immunotherapy and are currently being evaluated in patients with advanced solid tumours (ClinicalTrials.gov identifier NCT04777994). More broadly, our study shows that small-molecule inhibitors of key intracellular immune regulators can achieve efficacy comparable to or exceeding that of antibody-based immune checkpoint blockade in preclinical models. Finally, to our knowledge, AC484 represents the first active-site phosphatase inhibitor to enter clinical evaluation for cancer immunotherapy and may pave the way for additional therapeutics that target this important class of enzymes.