3-Alkylindoles undergo smooth oxidation with IBX in the presence of CeCl3· 7H2O in aqueous acetonitrile at ambient temperature to afford the corresponding 3-hydroxyoxindoles in high yields. This method is very useful for the direct preparation of 3-hydroxyoxindoles from 3-alkylindoles. Operational simplicity, mild and neutral reaction conditions in aqueous solution are the key features of this protocol.