Lymphocyte activation gene-3 (LAG-3) is an immune checkpoint receptor that drives T cell exhaustion and tumor immune evasion. While antibody-based LAG-3 inhibitors have entered clinical practice, their poor tumor penetration, high manufacturing costs, and prolonged half-lives limit dosing flexibility and can lead to extended immune-related toxicities. Potent small molecule LAG-3 inhibitors remain elusive, leaving a major gap in the immuno-oncology landscape. Here, we report the discovery of LAGi-DEL, the first nanomolar small molecule LAG-3 inhibitor, identified through screening a 4.2-billion compound DNA-encoded chemical library (DEL). LAGi-DEL binds directly to LAG-3 with a K$d$ of 97 nM (SPR) and 271 nM (MST) and disrupts the LAG-3/MHC-II interaction with an EC${50}$ of 138 nM, the highest potency reported for a small molecule against LAG-3. Molecular docking and dynamics simulations reveal that LAGi-DEL induces stabilizing conformational changes within the LAG-3 binding pocket. Functionally, LAGi-DEL restores T cell activation, elevates IFN-$\gamma$ secretion, and promotes immune-mediated killing in acute myeloid leukemia and lung cancer co-culture models, matching the efficacy of the FDA-approved antibody relatlimab. Pharmacokinetic profiling shows favorable drug-like properties, including high solubility, acceptable permeability, robust metabolic and plasma stability, low cytotoxicity toward normal cells, and negligible hERG and CYP liabilities. These attributes, combined with broad functional activity and unprecedented potency, position LAGi-DEL as a promising scaffold for developing orally available LAG-3 inhibitors and as a blueprint for next-generation immune checkpoint therapeutics.