Depending on the electronic properties of their substituents, the major products generated by palladium‐catalyzed cycloisomerizations of diarylalkynes are either highly substituted 8,8a‐dihydrocyclopenta[a]indenes 3 or naphthalenes 4. The structures of these compounds were verified by X‐ray crystallographic analysis. Many functional groups tolerated the reaction conditions evaluated in this study. The isotope‐labeled experiments indicated that added water has a critical role in forming both classes of compounds. The photophysical and electrochemical properties of cycloadducts 3 and their analogues were systematically studied and compared with computational predictions based on density functional theory. Dihydrocyclopenta[a]indenes 3 in either solid or liquid form display strong luminescence, whereas cyclopenta[a]indene 11 j is practically nonfluorescent. The functional groups directly attached to the backbone of compound 3 significantly influenced physical properties. The steric effect arising from the aryl substituents caused different luminescence phenomena, including aggregation‐induced and ‐enhanced emission.