Protein tyrosine phosphatase 1B (PTP1B) is a key enzyme in a variety of physiological processes including insulin and leptin signaling. Experimentally it has been previously suggested to form an enzyme-derived sulfenyl-amide intermediate as a means of protecting an active site cysteinyl against overoxidation. In this study, key aspects of the mechanism by which PTP1B mediates against overoxidation of its active site cysteinyl has been examined via multiscale computational enzymology (e.g., molecular dynamics simulations and high-level hybrid quantum mechanics/molecular mechanics). Several possible initial reactive complexes containing an active site sulfenic acid (oxidized cysteinyl) were considered, as well as possible reaction pathways and intermediates. Importantly, the only enzymatically feasible mechanism for formation of a putative sulfenyl-amide intermediate occurs via a stepwise pathway. The only feasible mechanism was found to occur in a stepwise fashion, in which a stable iminol intermediate is formed. This step has an activation energy of 48.6 kJ mol(-1). Later, a much more stable iminol intermediate is formed in which a noncovalent electrostatic interaction of the sulfenic acid sulfur antibonding orbital with the iminol nitrogen lone pair was found to occur. Subsequently, a cyclic sulfenyl-amide is formed with a concomitant proton transfer from Glu115 to the sulfenic acid oxygen. Our results suggest that Glu115 and His214 play a crucial role in the mechanism. These results could contribute to the discovery of PTP1B inhibitors and the stabilization of the enzyme oxidized form.