The ethanol extract of an Indonesian marine sponge Lamellodysidea herbacea inhibited the activity of protein tyrosine phosphatase 1B (PTP1B), an important target enzyme for the treatment of type II diabetes. Bioassay-guided isolation yielded a known polybromodiphenyl ether (1) as a sole bioactive component. The structure of 1 was confirmed by spectroscopic data for 1 and its methyl ether derivative (2). Compound 1 markedly inhibited the PTP1B activity (IC₅₀ = 0.85 μM) and showed a moderate cytotoxicity against two human cancer cell lines, HCT-15 (colon) and Jurkat (T-cell lymphoma) cells. On the other hand, compound 2 maintained potent inhibitory activity against PTP1B (IC₅₀ = 1.7 μM) but did not show apparent cytotoxicity at 18 μM against these cancer cells. Four ester derivatives [acetyl (3), butyryl (4), hexanoyl (5), and benzoyl (6)] were prepared from 1 and their activities evaluated against PTP1B and two cancer cell lines to investigate the structure-activity relationships. Although compounds 3-6 exhibited potent inhibitory effects against PTP1B activity, cytotoxicity against HCT-15 and Jurkat cells was observed as a similar efficacy to that of 1. From these results, compound 2 was found to be the best inhibitor of PTP1B with no apparent cytotoxicity. Therefore, 2 may be a lead compound for making a new type of PTP1B inhibitor. Moreover, compound 2 did not inhibit the cell growth of Huh-7 cells (hepatoma). Hepatocytes are one of the locations of PTP1B, and Huh-7 cells are used to study the mechanism of action of compound 2.