The transition metal-catalyzed reductive cyclization of o-nitrostyrene in the presence of carbon monoxide (CO) has been developed to be a general synthetic route to an indole skeleton, wherein CO was used as a reductant to deoxidize nitroarene into nitrosoarene and/or nitrene with CO₂ release, but the selective insertion of CO into the heterocyclic product with higher atom economy has not yet been realized. Herein, the Pd-catalyzed reduction of o-nitrostyrene by CO and its regioselective insertion were efficiently achieved to produce synthetically useful five- and six-membered benzo-fused lactams. Detailed investigations revealed that the chemoselectivity to indole or lactam was sensitive to the nature of the counteranions of Pd²⁺ precursors, whereas ligands significantly decided the carbonylative regioselectivity by different reaction pathways. Using PdCl₂/PPh₃/B(OH)₃ (condition A), an olefin hydrocarboxylation was primarily initiated followed by partial reduction of the NO₂ moiety and cyclization reaction to give N-hydroxyl indolin-2-one, which was further catalytically reduced by CO to afford the indolin-2-one as the final product with up to 95% yield. When the reaction was conducted under the Pd(TFA)₂/BINAP/TsOH·H₂O system (condition B), complete deoxygenation and carbonylation of the NO₂ group occurred initially to yield the corresponding isocyanate followed by internal hydrocyclization to generate 3,4-dihydroquinolin-2-one with up to 98% yield. Importantly, the methodology could be efficiently applied in the synthesis of marketed drug Aripiprazole.