RhIII‐catalyzed N‐nitroso‐directed CH addition to ethyl 2‐oxoacetate allows subsequent construction of indazoles, a privileged heterocycle scaffold in synthetic chemistry, through the exploitation of reactivity between the directing group and installed group. The formal [2+2] cycloaddition/fragmentation reaction pathway identified herein, a unique reactivity pattern hitherto elusive for the N‐nitroso group, emphasizes the importance of forward reactivity analysis in the development of useful CH functionalization‐based synthetic tools. The synthetic utility of the protocol is demonstrated with the synthesis of a tricyclic‐fused ring system. The diversity of covalent linkages available for the nitroso group should enable the extension of the genre of reactivity reported herein to the synthesis of other types of heterocycles.