Cyclobutadiene rhodium complexes [(C4R4)RhX]2 (R=Et, Ph; X=I, Cl) at 0.5 mol % loading catalyze the formation of aromatic amides from various indoles, tosyl azide, and carbon monoxide (1 atm). The reaction gives good yields of the target products (typically 60–85 %) and tolerates both donor and moderately acceptor substituents in the indoles (alkyl, OMe, Hal, COOMe, but not CN). The DFT calculations at the PBE/3ζ level revealed a new plausible mechanism for the reaction of TsN3 with CO via cycloaddition and formation of RhCON3 metallacycle, which is more favorable than the commonly assumed formation of nitrene intermediate.