Obesity is an ongoing epidemic and major contributor to the development of Type 2 diabetes. Multiple studies into the low molecular weight protein tyrosine phosphatase (LMPTP) have provided evidence for its role in the severity of obesity-related illnesses. Our lab previously reported that LMPTP drives insulin resistance in obesity by negatively regulating liver insulin signaling, and that inhibition of LMPTP relieves the severity of obesity-induced diabetes in mice. LMPTP is highly expressed in adipose tissue, and here, we report a characterization of the role of LMPTP in adipocyte differentiation. Using conditional knockout mice and in vitro adipogenesis assays, we found that a loss of LMPTP activity in preadipocytes reduces adipocyte differentiation. Inhibition of LMPTP during adipogenesis blocks expression of the pro-adipogenic transcription factor peroxisome proliferator-activated receptor gamma (PPARγ) and its downstream target genes. Interestingly, LMPTP inhibition enhances basal platelet-derived growth factor receptor alpha (PDGFRα) signaling, resulting in increased activation of p38 & c-Jun-N-terminal kinase (JNK), and increased inhibitory phosphorylation of PPARγ. Metabolomic analysis of differentiating 3T3-L1 preadipocytes suggests that LMPTP inhibition results in a phenotype closer to proliferation than differentiation, as evidenced by enhanced mitochondrial respiration and nucleotide synthesis. Finally, we characterized a new series of LMPTP inhibitors. We describe the role of Tyr131 of LMPTP in mediating inhibition and demonstrate that an inhibitor from this series is viable for cell-based assays. In summary, we propose a novel mechanism for the role of LMPTP in adipocyte differentiation while additionally providing new insight into possible strategies to target LMPTP for inhibition.