Selective functionalization of the indole-C3-C bond with aromatic/heteroaromatic 1,2-diketones has been uncovered for the first time. Cobalt catalyst was found to be an effective catalyst for this unusual transformation. This ipso-C-C bond functionalization occurred in the presence of easily available weakly coordinating groups such as ketone and ester. One of the salient features of this methodology is the in situ generation of water from hexafluoro-2-propanol which acts as a reactant for the removal of the pivaloyl/ester group in a deacylative manner. The plausible mechanism has been supported by DFT calculations. Moreover, photophysical studies show the potential utility of indole-C3-acyloin and indolo-fused carbazole, which could be used in photovoltaic and optoelectronic application.