Formal aromatic C-H insertion of rhodium(II) carbenoid was intensively investigated to develop a new methodology and probe its mechanism. Contrasting with the previously proposed direct C-H insertion, the mechanism was revealed to be electrophilic aromatic substitution, which was supported by substituent effects on the aromatic ring and a secondary deuterium kinetic isotope effect. Various isoquinolinones were synthesized intramolecularly via six-membered ring formation with high regio- and diastereoselectivity, while averting the common Buchner-type reaction. Intermolecularly, dirhodium catalyzed formal aromatic C-H insertion on electron-rich aromatics was also achieved.