We have recently developed palladium-catalyzed methods for direct arylation of indoles (and other azoles) wherein high C-2 selectivity was observed for both free (NH)-indole and (NR)-indole. To provide a rationale for the observed selectivity ("nonelectrophilic" regioselectivity), mechanistic studies were conducted, using the phenylation of 1-methylindole as a model system. The reaction order was determined for iodobenzene (zero order), indole (first order), and the catalyst (first order). These kinetic studies, together with the Hammett plot, provided a strong support for the electrophilic palladation pathway. In addition, the kinetic isotope effect (KIE(H/D)) was determined for both C-2 and C-3 positions. A surprisingly large value of 1.6 was found for the C-3 position where the substitution does not occur (secondary KIE), while a smaller value of 1.2 was found at C-2 (apparent primary KIE). On the basis of these findings, a mechanistic interpretation is presented that features an electrophilic palladation of indole, accompanied by a 1,2-migration of an intermediate palladium species. This paradigm was used to design new catalytic conditions for the C-3 arylation of indole. In case of free (NH)-indole, regioselectivity of the arylation reaction (C-2 versus C-3) was achieved by the choice of magnesium base.