Seasonal and pandemic influenza viruses continue to be a leading global health concern. Emerging resistance to the current drugs and the variable efficacy of vaccines underscore the need for developing new flu drugs that will be broadly effective against wild-type and drug-resistant influenza strains. Here, we report the discovery and development of a class of inhibitors targeting the cap-snatching endonuclease activity of the viral polymerase. A high-resolution crystal form of pandemic 2009 H1N1 influenza polymerase acidic protein N-terminal endonuclease domain (PAN) was engineered and used for fragment screening leading to the identification of new chemical scaffolds binding to the PAN active site cleft. During the course of screening, binding of a third metal ion that is potentially relevant to endonuclease activity was detected in the active site cleft of PAN in the presence of a fragment. Using structure-based optimization, we developed a highly potent hydroxypyridinone series of compounds from a fragment hit that defines a new mode of chelation to the active site metal ions. A compound from the series demonstrating promising enzymatic inhibition in a fluorescence-based enzyme assay with an IC50 value of 11 nM was found to have an antiviral activity (EC50) of 11 μM against PR8 H1N1 influenza A in MDCK cells.