Diverse 2,3-substituted indanones are accessed in an efficient and robust protocol by a rhodium-catalyzed tandem carborhodium/cyclization and intramolecular proton shift pathway. The reaction is compatible with a broad range of functional internal acetylenes, especially for natural and functionalized alkynes derivatives, affording the desired indanones in good to excellent yields. Remarkably, this reaction features very mild and sustainable conditions using water as the sole solvent and without exogenous ligands. Control studies support that indanone is formed through the intramolecular proton transfer process from the key intermediate indenol.