Lead identification and optimization are essential steps in the development of a new drug. It requires cost-effective, selective and sensitive chemical tools. Here, we report a novel method using nanobodies that allows the efficient screening for potent ligands. The method is illustrated with the cystic fibrosis transmembrane conductance regulator inhibitory factor (Cif), a virulence factor secreted by the opportunistic pathogen Pseudomonas aeruginosa. 18 nanobodies selective to Cif were isolated by bio-panning from nanobody-phage library constructed from immunized llama. 8 out of 18 nanobodies were identified as potent inhibitors of Cif enzymatic activity with ICs in the range of 0.3-6.4 μM. A nanobody VHH219 showed high affinity (K = 0.08 nM) to Cif and the highest inhibitory potency, IC = 0.3 μM. A displacement sandwich ELISA (dsELISA) with VHH219 was then developed for classification of synthetic small molecule inhibitors according their inhibitory potency. The developed assay allowed identification of new inhibitor with highest potency reported so far (0.16 ± 0.02 μM). The results from dsELISA assay correlates strongly with a conventional fluorogenic assay (R = 0.9998) in predicting the inhibitory potency of the tested compounds. However, the novel dsELISA is an order of magnitude more sensitive and allows the identification and ranking of potent inhibitors missed by the classic fluorogenic assay method. These data were supported with Octet biolayer interferometry measurements. The novel method described herein relies solely on the binding properties of the specific neutralizing nanobody, and thus is applicable to any pharmacological target for which such a nanobody can be found, independent of any requirement for catalytic activity.