Azametallacyclopentadienes are an important class of metallacycles as the key intermediates in metal‐promoted or catalyzed carbon‐carbon coupling reaction of nitriles and alkynes. Rare‐earth azametallacyclopentadienes have shown unique reactivity toward benzonitriles. The reaction chemistry of azalutetacyclopentadienes toward 2‐methylbenzonitriles has been investigated in this work, showing different reactivity. Experimental and computational studies reveal that the reaction selectively initiates with the remote activation of the benzylic C−H bond by the Lu−N bond, followed by the intramolecular nucleophilic attack from the deprotonated benzylic carbon to form a C−C bond. Subsequently, the high ring strain promoted the generation of the uncoordinated carbanion dissociated from the lutetium center, which then undergoes intramolecular nucleophilic attack toward C≡N triple bond to give the final product containing fused 7‐5‐6‐membered azalutetacycle. This work not only achieves highly selective three‐step cascade transformation to form a unique class of rare‐earth metallacycle, but also reveals a novel reaction pattern of unsaturated substrates with C−H bonds that can be activated.