CONTEXTSHP2 is a non-receptor protein tyrosine phosphatase to remove tyrosine phosphorylation. Functionally, SHP2 is an essential bridge to connect numerous oncogenic cell-signaling cascades including RAS-ERK, PI3K-AKT, JAK-STAT, and PD-1/PD-L1 pathways. This study aims to discover novel and potent SHP2 inhibitors using a hierarchical structure-based virtual screening strategy that combines molecular docking and the fragment molecular orbital method (FMO) for calculating binding affinity (referred to as the Dock-FMO protocol). For the SHP2 target, the FMO method prediction has a high correlation between the binding affinity of the protein-ligand interaction and experimental values (R2 = 0.55), demonstrating a significant advantage over the MM/PBSA (R2 = 0.02) and MM/GBSA (R2 = 0.15) methods. Therefore, we employed Dock-FMO virtual screening of ChemDiv database of ∼2,990,000 compounds to identify a novel SHP2 allosteric inhibitor bearing hydroxyimino acetamide scaffold. Experimental validation demonstrated that the new compound (E)-2-(hydroxyimino)-2-phenyl-N-(piperidin-4-ylmethyl)acetamide (7188-0011) effectively inhibited SHP2 in a dose-dependent manner. Molecular dynamics (MD) simulation analysis revealed the binding stability of compound 7188-0011 and the SHP2 protein, along with the key interacting residues in the allosteric binding site. Overall, our work has identified a novel and promising allosteric inhibitor that targets SHP2, providing a new starting point for further optimization to develop more potent inhibitors.METHODSAll the molecular docking studies were employed to identify potential leads with Maestro v10.1. The protein-ligand binding affinities of potential leads were further predicted by FMO calculations at MP2/6-31G* level using GAMESS v2020 system. MD simulations were carried out with AmberTools18 by applying the FF14SB force field. MD trajectories were analyzed using VMD v1.9.3. MM/GB(PB)SA binding free energy analysis was carried out with the mmpbsa.py tool of AmberTools18. The docking and MD simulation results were visualized through PyMOL v2.5.0.