A novel method for the synthesis of 4-phenylquinazolinones via a palladium-catalyzed domino reaction of o-aminobenzamides with benzyl alcohols is developed. This protocol involves N-benzylation, benzylic C-H amidation, and dehydrogenation in water, which may play an important role in the smooth generation of the (η(3)-benzyl)palladium species by activation of the hydroxyl group of the benzyl alcohol.