The synthesis of functionalized carbazoles plays a essential role in the development of biologically active compounds. In this study, we disclose a Rh(III)-catalyzed approach for the efficient construction of 2-hydroxycarbazoles through the reaction of indolyl nitrones with alkylidenecyclopropanes. The reaction mechanism is proposed to proceed via an initial [3 + 2] cycloaddition between the nitrone and a diene intermediate generated during the reaction, followed by a sequential aromatization and reductive cleavage of the N–O bond. Furthermore, the synthetic applicability of this method is underscored by various post-synthetic modifications, demonstrating its value in complex molecule synthesis.