In this study, a novel bacterial strain M9Z with the ability of producing indigoids from indole and its derivatives was isolated from activated sludge and identified as Enterobacter sp. according to 16S ribosomal RNA (rRNA) sequence analysis. UV-vis spectrometry and high-performance liquid chromatography-mass spectrometry analysis indicated that the products produced from indole, 5-methylindole, 7-methylindole, and 5-methoxyindole were indigo with different substituent groups, and the possible biotransformation pathways of indole derivatives, i.e., indole(s)-cis-indole-2,3-dihydrodiol(s)-indoxyl(s)-indigoids, were proposed. The conditions of indole transformation and indigo biosynthesis by strain M9Z were optimized, and the maximal indigo yield (68.1 mg/L) was obtained when using 150 mg/L indole, 200 mg/L naphthalene, and 5 g/L yeast extract. The transformation rates of 5-methylindole, 7-methylindole, and 5-methoxyindole by strain M9Z were all close to 100 % under certain conditions, making strain M9Z an efficient indigoid producer. This is the first study of indole biotransformation and indigoid biosynthesis by genus Enterobacter.