Density functional theory calculations have been utilized to investigate the synergistic effect of palladium(0) and copper(I) catalyzed selective formation of allylated indole from (2-alkynyl)-phenylisocyanate and allyl methyl carbonate. The main competing reaction yielding the N-allyl carbamate was also considered. Calculated results indicate that using the Pd(0)-complex alone, the generation of indole is kinetically much less favored than producing the N-allyl carbamate compound. However, the co-addition of Cu(I) catalyst can considerably decrease the barrier for the intramolecular cyclization step, leading to the formation of the indole product. Analysis of the cyclization process suggests that Cu(I) complex can act as a Lewis acid to activate the linear alkyne group via a π-coordination manner prior to the formation of a 5-membered ring transition state toward indole formation. Altogether, the mechanistic insights revealed in the present study aim at a better understanding of the mechanism and the factors governing the selectivity in synergistic Pd/Cu catalysis.