The direct Pd-catalyzed arylation of 5-substituted benzoxazoles, used as a mechanistic model for 1,3-azoles, was investigated experimentally and computationally. The results of the primary deuterium kinetic isotope effect, Hammett studies, and H/D exchange were shown to be inconsistent with the rate-limiting electrophilic or concerted palladation. A mechanism, proposed on the basis of kinetic and computational studies, includes generation of isocyanophenolate as the key step. The DFT calculations suggest that the overall catalytic cycle is facile and is largely controlled by the C-H acidity of the substrate.