With the objective of developing a new environmental friendly inhibitor formulation for corrosion of carbon steel in nearly neutral aqueous environments, phosphonic acid viz., N-(2-hydroxyethyl) imino-bis(methylphosphonic acid) [HEIBMPA] was chosen as the inhibitor. Zn2+ was chosen as the first synergist. A maximum inhibition efficiency of 99.3% was obtained with the binary system containing 70 ppm HEIBMPA and 80 ppm Zn2+. Molybdate ion, which is inorganic in nature but environmental friendly, was used as the second synergist. The binary inhibitor formulation containing relatively. low concentrations, viz., 30 ppm HEIBMPA and 40 ppm Zn2+ offered an inhibition efficiency of only 23%, To the above combination, when 200 ppm molybdate was added, the inhibition efficiency was found to increase to 95%. The potentiostatic polarization studies revealed that this ternary inhibitor system controlled the anodic reaction predominantly. A large increase in the polarisation resistance (R-p) value indicated the formation of a non-porous protective film on the metal surface. The reflection absorption FT-IR spectrum and X-ray photoelectron spectra of the film suggested that the film consisted of [Fe(III)-HEIBMPA-molybdate] complex, [Fe(III), Zn(II)-HEIBMPA-molybdate]complex, oxides and hydroxides of iron and Zn(OH)(2). A plausible mechanism of inhibition of corrosion is proposed, which explains all the above experimental results.