Azametallacyclopentadienes are an important class of metallacycles as the key intermediates in metal-promoted or catalyzed carbon-carbon coupling reaction of nitriles and alkynes. Rare-earth azametallacyclopentadienes have shown unique reactivity toward benzonitriles. The reaction chemistry of azalutetacyclopentadienes toward 2-methylbenzonitriles has been investigated in this work, showing different reactivity. Experimental and computational studies reveal that the reaction selectively initiates with the remote activation of the benzylic C-H bond by the Lu-N bond, followed by the intramolecular nucleophilic attack from the deprotonated benzylic carbon to form a C-C bond. Subsequently, the high ring strain promoted the generation of the uncoordinated carbanion dissociated from the lutetium center, which then undergoes intramolecular nucleophilic attack toward C≡N triple bond to give the final product containing fused 7-5-6-membered azalutetacycle. This work not only achieves highly selective three-step cascade transformation to form a unique class of rare-earth metallacycle, but also reveals a novel reaction pattern of unsaturated substrates with C-H bonds that can be activated.