Density functional theory calculations are used to study the reaction mechanism and origins of C2-selectivity in a rhodium-catalyzed arylation of indole. It is shown that the reaction is catalyzed by an anionic Rh(III)-intermediate that activates the substrate through a concerted-metalation deprotonation. Dissociation of pivalic acid and subsequent reductive elimination generate the arylated indole product. Oxidative addition of the aryl iodide and a subsequent ligand exchange regenerates the active catalytic species. The origin of the regioselectivity is found to be the more favorable interaction between the 2-indolyl fragment and the metal center compared to the 3-indolyl fragment. Moreover, the better interaction of the pivalate ligands with the substrate in the transition state for the activation of C2H compared to the transition state for the C3H activation further favors the C2-selectivity.