Palladium-phenanthroline complexes efficiently catalyze the reaction of nitroarenes with arylalkynes and CO to give 3-arylindoles by an ortho-C-H functionalization of the nitroarene ring. Both electron-withdrawing and electron-donating substituents are tolerated on the nitroarene, except for bromide and activated chloride. Nitroarenes bearing electron-withdrawing substituents react faster, but the selectivity of the reaction depends on both polar and radical stabilization effects. Among those tested, only arylalkynes afforded indoles under the investigated conditions. The reaction mechanism was partly investigated. The kinetics is first order in nitroarene concentration and the rate-determining step of the cycle is the initial nitroarene reduction. No primary isotope effect is observed on either rate or selectivity, implying that the cyclization step is fast.