Cantharidin is a natural toxin and an active constituent in a traditional Chinese medicine used to treat tumors. Cantharidin acts as a semi-selective inhibitor of PPP-family ser/thr protein phosphatases. Despite sharing a common catalytic mechanism and marked structural similarity with PP1C, PP2AC and PP5C, human PP4C was found to be insensitive to the inhibitory activity of cantharidin. To explore the molecular basis for this selectivity, we synthesized and tested novel C5/C6-derivatives designed from quantum-based modeling of the interactions revealed in the co-crystal structures of PP5C in complex with cantharidin. Structure–activity relationship studies and analysis of high-resolution (1.25 Å) PP5C-inhibitor co-crystal structures reveal close contacts between the inhibitor bridgehead oxygen and both a catalytic metal ion and a non-catalytic phenylalanine residue, the latter of which is substituted by tryptophan in PP4C. Quantum chemistry calculations predicted that steric clashes with the bulkier tryptophan side chain in PP4C would force all cantharidin-based inhibitors into an unfavorable binding mode, disrupting the strong coordination of active site metal ions observed in the PP5C co-crystal structures, thereby rendering PP4C insensitive to the inhibitors. This prediction was confirmed by inhibition studies employing native human PP4C. Mutation of PP5C (F446W) and PP1C (F257W), to mimic the PP4C active site, resulted in markedly suppressed sensitivity to cantharidin. These observations provide insight into the structural basis for the natural selectivity of cantharidin and provide an avenue for PP4C deselection. The novel crystal structures also provide insight into interactions that provide increased selectivity of the C5/C6 modifications for PP5C versus other PPP-family phosphatases.