DNA-encoded libraries have emerged as a widely used resource for discovery of bioactive small molecules and offer substantial advantages compared to conventional small-molecule libraries. Here we developed and streamlined multiple fundamental aspects of DNA-encoded and DNA-templated library synthesis methodology, including computational identification and experimental validation of a 20×20×20×80 set of orthogonal codons, chemical and computational tools for enhancing the structural diversity and drug-likeness of library members, a highly efficient polymerase-mediated template library assembly strategy, and library isolation and purification methods. We integrated these improved methods to produce a second-generation DNA-templated library of 256,000 small-molecule macrocycles with improved drug-like physical properties. In vitro selection of this library for insulin-degrading enzyme (IDE) affinity resulted in novel IDE inhibitors including one of unusual potency and novel macrocycle stereochemistry (IC50 = 40 nM). Collectively, these developments enable DNA-templated small-molecule libraries to serve as more powerful, accessible, streamlined, and cost-effective tools for bioactive small-molecule discovery.