Palladium-catalyzed C-H functionalization of acyldiazomethanes with aryl iodides has been developed. This reaction is featured by the retention of the diazo functionality in the transformation, thus constituting a novel method for the introduction of diazo functionality to organic molecules. Consistent with the experimental results, the density functional theory (DFT) calculation indicates that the formation of Pdcarbene species in the catalytic cycle through dinitrogen extrusion from the palladium ethyl diazoacetate (Pd-EDA) complex is less favorable. The reaction instead proceeds through Ag2CO3 assisted deprotonation and subsequently reductive elimination to afford the products with diazo functionality remained. This C-H functionalization transformation can be further combined with the recently evolved palladium-catalyzed cross-coupling reaction of diazo compounds with aryl iodides to develop a tandem coupling process for the synthesis of alpha,alpha-diaryl esters. DFT calculation supports the involvement of Pdcarbene as reactive intermediate in the catalytic cycle, which goes through facile carbene migratory insertion with a low energy barrier (3.8 kcal/mol).