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As a result of detailed mechanistic and kinetic studies, we have proposed that PdX2-catalyzed oxidative coupling of o-alkynylanilines 1 with terminal alkynes 2 under aerobic conditions is initiated by aminopalladation of 1 followed by ligand exchange of the resulting s-indolylpalladium(II) complex with 2, reductive elimination and N-demethylation. Side reactions associated with intermediates on the way to 2,3-disubstituted indoles 3 were identified, and the roles of acetate and iodide in channeling the reaction towards the desired product were established. Based on kinetic and spectroscopic studies, the soluble iodide-ligated Pd0 species was proposed to be the resting state of the catalyst and its oxidation to active PdII species was the turnover-limiting step. Catalytic conditions with low loading of Pd(OAc)2 (0.0005 to 0.001 equiv) were subsequently developed.