Essential for viral replication and highly conserved among poxviridae, the vaccinia virus I7L ubiquitin-like proteinase (ULP) is an attractive target for development of smallpox antiviral drugs. At the same time, the I7L proteinase exemplifies several interesting challenges from the rational drug design perspective. In the absence of a published I7L X-ray structure, we have built a detailed 3D model of the I7L ligand binding site (S2-S2' pocket) based on exceptionally high structural conservation of this site in proteases of the ULP family. The accuracy and limitations of this model were assessed through comparative analysis of available X-ray structures of ULPs, as well as energy based conformational modeling. The 3D model of the I7L ligand binding site was used to perform covalent docking and VLS of a comprehensive library of about 230,000 available ketone and aldehyde compounds. Out of 456 predicted ligands, 97 inhibitors of I7L proteinase activity were confirmed in biochemical assays ( approximately 20% overall hit rate). These experimental results both validate our I7L ligand binding model and provide initial leads for rational optimization of poxvirus I7L proteinase inhibitors. Thus, fragments predicted to bind in the prime portion of the active site can be combined with fragments on non-prime side to yield compounds with improved activity and specificity.