Protein tyrosine phosphatase 1b (PTP1b) is a member of the protein tyrosine phosphatase (PTP) enzyme group and encoded as PTP1N gene. Studies have evidenced an overexpression of the PTP1b enzyme in metabolic syndrome, anxiety, schizophrenia, neurodegeneration, and neuroinflammation. PTP1b inhibitor negatively regulates insulin and leptin pathways and has been explored as an antidiabetic agent in various clinical trials. Notably, the preclinical studies have shown that recuperating metabolic dysfunction and dyshomeostasis can reverse cognition and could be a possible approach to mitigate multifaceted Alzheimer's disease (AD). PTP1b inhibitor thus has attracted attention in neuroscience, though the development is limited to the preclinical stage, and its exploration in large clinical trials is warranted. This review provides an insight on the development of PTP1b inhibitors from different sources in diabesity. The crosstalk between metabolic dysfunction and insulin insensitivity in AD and type-2 diabetes has also been highlighted. Furthermore, this review presents the significance of PTP1b inhibition in AD based on pathophysiological facets, and recent evidences from preclinical and clinical studies.