A Pd-catalyzed relatively general Michaelis-Arbuzov reaction of triaryl phosphites and aryl iodides for preparing useful aryl phosphonates was developed. Interestingly, water can greatly facilitate the reaction through a water-participating phosphonium intermediate rearrangement process, which also makes the reaction conditions rather mild. In comparison with the known methods, this reaction is milder and more general, as it exhibits excellent functional group tolerance, can be applied to various triaryl phosphites and aryl iodides, and can be extended to aryl phosphonites and phosphinites. A gram-scale reaction with a low catalyst loading also revealed its practicality and potential in large-scale preparation.