The synthesis of N-unprotected indoles has been realized via Rh(III)-catalyzed C–H activation/annulation of imidamides with α-diazo β-ketoesters. The reaction occurs with the release of an amide coproduct, which originates from both the imidamide and the diazo as a result of C═N cleavage of the imidamide and C–C(acyl) cleavage of the diazo. A rhodacyclic intermediate has been isolated and a plausible mechanism has been proposed.