The pandemic of coronavirus disease 2019 (COVID-19) is changing the world like never before. This crisis is unlikely contained in the absence of effective therapeutics or vaccine. The papain-like protease (PLpro) of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) plays essential roles in virus replication and immune evasion, presenting a charming drug target. Given the PLpro proteases of SARS-CoV-2 and SARS-CoV share significant homology, inhibitor developed for SARS-CoV PLpro is a promising starting point of therapeutic development. In this study, we sought to provide structural frameworks for PLpro inhibitor design. We determined the unliganded structure of SARS-CoV-2 PLpro mutant C111S, which shares many structural features of SARS-CoV PLpro. This crystal form has unique packing, high solvent content and reasonable resolution 2.5 Å, hence provides a good possibility for fragment-based screening using crystallographic approach. We characterized the protease activity of PLpro in cleaving synthetic peptide harboring nsp2/nsp3 juncture. We demonstrate that a potent SARS-CoV PLpro inhibitor GRL0617 is highly effective in inhibiting protease activity of SARS-CoV-2 with the IC50 of 2.2 ± 0.3 μmol/L. We then determined the structure of SARS-CoV-2 PLpro complexed by GRL0617 to 2.6 Å, showing the inhibitor accommodates the S3-S4 pockets of the substrate binding cleft. The binding of GRL0617 induces closure of the BL2 loop and narrows the substrate binding cleft, whereas the binding of a tetrapeptide substrate enlarges the cleft. Hence, our results suggest a mechanism of GRL0617 inhibition, that GRL0617 not only occupies the substrate pockets, but also seals the entrance to the substrate binding cleft hence prevents the binding of the LXGG motif of the substrate.