The papain-like protease (PL ) of SARS-CoV-2 is a validated antiviral drug target. PL is involved in the cleavage of viral polyproteins and antagonizing host innate immune response through its deubiquitinating and deISG15ylating activities, rendering it a high profile antiviral drug target. Through a FRET-based high-throughput screening, several hits were identified as PL inhibitors with IC values at the single-digit micromolar range. Subsequent lead optimization led to potent inhibitors with IC values ranging from 0.56 to 0.90 μM. To help prioritize lead compounds for the cellular antiviral assay against SARS-CoV-2, we developed the cell-based FlipGFP assay that is suitable for quantifying the intracellular enzymatic inhibition potency of PL inhibitors in the BSL-2 setting. Two compounds selected from the FlipGFP-PL assay, Jun9-53-2 and Jun9-72-2, inhibited SARS-CoV-2 replication in Caco-2 hACE2 cells with EC values of 8.89 and 8.32 μM, respectively, which were 3-fold more potent than GRL0617 (EC = 25.1 μM). The X-ray crystal structures of PL in complex with GRL0617 showed that binding of GRL0617 to SARS-CoV-2 induced a conformational change in the BL2 loop to the more closed conformation. Overall, the PL inhibitors identified in this study represent promising starting points for further development as SARS-CoV-2 antivirals, and FlipGFP-PL assay might be a suitable surrogate for screening PL inhibitors in the BSL-2 setting.