A novel and efficient route for the synthesis of 7-aza-tetrahydroindoles from N-aryl/alkyl-alkenoylacetamides and ethyl isocyanoacetate is described. A mechanism, involving a stepwise [3+2] cycloaddition-intramolecular aza-Michael addition cascade, is proposed that explains the origin of the double nucleophilic attack on the isocyanide carbon atom.