The CB2 receptor is an attractive therapeutic target for analgesic and anti-inflammatory agents. Herein we describe the discovery of a novel class of oxadiazole derivatives from which potent and selective CB2 agonist leads were developed. Initial hit 7 was identified from a cannabinoid target-biased library generated by virtual screening of sample collections using a pharmacophore model in combination with a series of physicochemical filters. 7 was demonstrated to be a selective CB2 agonist (CB2 EC50 = 93 nM, Emax = 98%, CB1 EC50 > 10 microM). However, this compound exhibited poor solubility and relatively high clearance in rat, resulting in low oral bioavailability. In this paper, we report detailed SAR studies on 7 en route toward improving potency, physicochemical properties, and solubility. This effort resulted in identification of 63 that is a potent and selective agonist at CB2 (EC50 = 2 nM, Emax = 110%) with excellent pharmacokinetic properties.