We report an FeCl2‐catalyzed radical rearrangement of aryl peroxyoxindoles into 1,3‐benzooxazin‐2‐ones to obtain a variety of aryl substituted 1,3‐benzooxazin‐4‐ones in moderate to good yields. Mechanistically, this skeletal rearrangement of peroxyoxindoles proceeded via radical pathway and was well supported with a series of experimental findings and DFT studies.