An unprecedented carbene-induced skeletal recasting of benzo[c][1,2]dithiol-3-ones is demonstrated herein. This Pd-catalyzed molecular editing of benzo[c][1,2]dithiol-3-ones serves as a powerful platform for the streamline assembly of diverse 3-hydroxybenzo[b]thiophenes in decent yields under mild conditions by taking advantage of diazo compounds as the carbene precursors. The current skeletal recasting reaction is operationally simple (not sensitive to water and air), scalable, and well-suited for late-stage functionalization of complex diazo compounds derived from marketed drugs and natural products, in which valuable 3-hydroxybenzo[b]thiophenes could be achieved via formal [4 + 1] cyclization reaction. A novel palladium-catalyzed skeletal recasting reaction for the streamline assembly of 3-hydroxybenzo[b]thiophene is demonstrated herein, which represents the first example for carbene-induced skeletal editing of benzo[c][1,2]dithiol-3-ones by using diazo compounds as the carbene precursors.