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 CO 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 Pd precursors, whereas ligands significantly decided the carbonylative regioselectivity by different reaction pathways. Using PdCl/PPh/B(OH) (condition A), an olefin hydrocarboxylation was primarily initiated followed by partial reduction of the NO 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)/BINAP/TsOH·HO system (condition B), complete deoxygenation and carbonylation of the NO 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.