(FORTUNE Small Business) – If you want to become a florist in Louisiana, a state law requires you to take a licensing exam. Your flowers are evaluated by licensed florists on subjective criteria such as whether they are "spaced effectively" and have the "proper focal point." More than half of the applicants fail. Do unlicensed florists present a big menace? No, many believe the real explanation is that Louisiana florists want to limit their competition. In Oklahoma a similar law requires that anyone who wants to sell caskets must first obtain a funeral director's license and embalm 25 bodies. These laws and others like them can seem unfair to entrepreneurs, and in recent years a nonprofit law firm called the Institute for Justice has helped small businesses fight them.

Based in Washington, D.C., the Institute for Justice is the only libertarian law firm in the country that handles cases coast-to-coast. (That's libertarian with a lower-case 'l'--IJ is not affiliated with any political party.) Working at no cost to clients, IJ's lawyers try to limit government regulation, usually by challenging state laws. Aside from a handful of cases involving school choice and residential property rights, IJ works almost exclusively on behalf of small businesses, specifically in economic liberty, free speech, and eminent domain cases. It files suit only against the government, not private parties, and it doesn't handle social issues such as abortion, gun control, or prayer in schools.

The firm has 12 to 15 active cases at any time, and several have been in the headlines in recent months. In March the Arizona Structural Pest Control Commission backed down from prosecuting Christian Alf, a Tempe, Ariz., 17-year-old who started an after-school business patching holes in roofs to protect homes from a local rat infestation. At $30 a job, Alf was severely undercutting local licensed exterminators. After receiving IJ's letter stating its intention to support Alf, and unflattering coverage in the Arizona Republic (MOST IRRITATING PESTS ARE THOSE ON STATE COMMISSION), the commission determined that Alf was not breaking the law and issued a letter wishing him well.

The idea for IJ dates back to the Kent State massacre of 1970, when the firm's co-founder and president, Chip Mellor, was a freshman at nearby Ohio State. That environment of outrage and protest caused what Mellor calls a "life-changing epiphany" that the libertarian views of Milton Friedman and Ayn Rand would create the greatest amount of freedom for Americans. After graduation he attended law school, then worked with IJ co-founder Clint Bolick at a conservative public-interest law firm in Denver and in the Reagan administration. All along, the two were drafting blueprints for the Institute. Finally, in 1990, Mellor phoned Bolick. "I said, 'This is it,'" Mellor recalls. "'We've got to take it off the drawing board or resign it to the realm of a dream, and we're not going to do that, are we?'"

They began in 1991 with one other lawyer and a pledge from a Wichita businessman of $500,000 a year for three years. Today IJ has a budget of $6 million--70% of which comes from 3,500 individuals, the remainder from family foundations--and employs 14 lawyers. It also runs an entrepreneurship clinic at the University of Chicago. (Bolick, who led the fight against President Clinton's nomination of Lani Guinier to head the Justice Department's civil rights division in 1993, left IJ amicably in April to head a nonprofit that advocates for voucher programs.)

When faced with burdensome rules, most small businesses can't afford to mount a constitutional challenge against the government in court. "They have to either give up or go along with laws they know in their heart are wrong," says Mellor. "That's not the way it should be in this country." For some, fighting unjust laws is a necessary step to staying in business. In Las Vegas, a startup limousine company was being denied permits by the local commission, until IJ got the requirements relaxed. In Mesa, Ariz., IJ is fighting an economic liberty case for Edward Salib, owner of a Winchell's Donut Shop franchise. In 2002, Salib was barred from advertising his crullers and frozen mocha cappuccinos in his store window. According to a city law, no more than 30% of a store window can be covered. The rationale was that police need to see into the windows, but IJ contends that businesses are not required to have windows at all, so the ones that do should be able to put whatever they want in them.

As for property rights, IJ has been fighting for home and business owners in Connecticut, New York, and Ohio whose land has been seized through eminent domain. While such seizures are constitutional if the property is marked for public use, in these cases the land was intended for private developers. In Port Chester, N.Y., an IJ client named William Brody bought four buildings, renovated them, and rented them to small businesses. The city of Port Chester took the buildings from him to make room for a Stop & Shop supermarket parking lot. Brody and IJ lost the case but have appealed; his buildings have already been bulldozed.

IJ's goal is to win cases that will set legal precedents. To create the maximum impact for its time and money, IJ seeks cases where the trial and all appeals can be settled as quickly as possible, preferably within four years. Much of that depends on selecting the right clients. "We look for sympathetic clients, an evil villain, and outrageous yet relatively simple facts," Mellor says.