By employing DFT calculations and analysis, we have conducted a comprehensive theoretical investigation on the Rh(III)-catalyzed C-H functionalization/cyclization reaction of indazolone derivatives, elucidating the mechanistic pathways leading to different products under varying solvent and reaction conditions. After the formation of allyl alcohol intermediate, two distinct reaction pathways emerge primarily due to differences in solvent properties. The calculation results indicate that the additive AgSbF6 plays a pivotal role in facilitating Cl-departure through dehalogenation to promote the generation of catalytically active species.