In the present work, a series of new 5-substituted-3-(4-arylimino)-1-[5-mercapto(1,3,4-oxadiazolyl)]-methyl-indol-2-one (4a-g) have been synthesized by heterocyclization of 5-substituted-3-(4-arylimino)-2-oxo-1-indole acetylhyrazide (3a-g) on treatment with CS2 in ethanolic KOH. The compound 4a was characterized by its elemental analysis, IR, 1HNMR and Mass Spectroscopy. The synthesized compounds (4a-g) were evaluated for in vitro antibacterial activity and antifungal activity against various strains of bacteria and fungi.