Divergent synthesis of indoles, oxindoles, isocoumarins and isoquinolinones is described in this report by using a general Pd-catalyzed tandem reaction of β-hydroxy carbonyl compounds with aryl halides bearing an ortho-nitro, -ester or -cyano substituent. A key retro-aldol/α-arylation reaction is involved that merges classic Pd cross-coupling chemistry with novel Pd-promoted retro-aldol C-C activation to produce α-arylated ketones or esters. Subsequent intramolecular condensation of the carbonyl with the ortho-synthon gives target heterocycles. The use of common, commercially available and cheap substrates and catalyst system adds additional synthetic advantages to the conceptual significance.