A novel oxidative rearrangement of the diazene moiety in 3-aryl azo indoles is reported, leading to the formation of C3-oxo-C2-amino indoles with excellent regioselectivity. This transformation, achieved using oxone in water at ambient temperature, proceeds in good yields with broad functional group tolerance, including toward azaindoles. Mechanistic insights are gained through control experiments, crystal structures, and density functional theory calculations. Experimental and theoretical photophysical studies, along with cellular uptake and colocalization experiments, demonstrate that the resulting compounds selectively bind to lipid droplets (LDs), highlighting their potential as fluoroprobes for LD detection.