Density functional theory (DFT) calculation has been used to reveal palladium‐catalyzed mode of diaziridinone ring activation. Our theoretical studies found that oxidative addition of di‐tert‐butyldiaziridinone to Pd(II) can give a high valent Pd(IV) intermediate, along with the cleavage of N‐N bond in di‐tert‐butyldiaziridinone through a concerted three‐membered cyclic transition state. Subsequent transformation via reductive elimination and β‐N elimination give the desired indolo[3,2‐b]indole product. The competitive activation modes such as metathesis, migratory insertion can be excluded in our selected model reaction. The rate‐determining step of this reaction is the oxidative addition of di‐tert‐butyldiaziridinone step. Distortion‐interaction analysis was conducted to reveal that the oxidative addition mode of di‐tert‐butyldiaziridinone is superior to the metathesis mode due to the lower interaction energy.