A number of 2-substituted tetrahydroindazolones were synthesized by three-component condensation reaction of 1,3-diketones, substituted hydrazines, benzaldehydes, and Yb(OTf)3 as a catalyst in [bmim][BF4] ionic liquid using a simple, efficient, and economical one-pot method. The synthesized tetrahydroindazolones were evaluated for inhibition of cell proliferation of human colon carcinoma (HT-29), human ovarian adenocarcinoma (SK-OV-3), and c-Src kinase activity. 3,4-Dichlorophenyl tetrahydroindazolone derivative (15) inhibited the cell proliferation of HT-29 and SK-OV-3 cells by 62% and 58%, respectively. 2,3-Diphenylsubstituted tetrahydroindazolone derivatives, 19, 25, and33, inhibited the cell proliferation of HT-29 cells by 6572% at a concentration of 50 μM. In general, the tetrahydroindazolones showed modest inhibition of c-Src kinase where 4-tertbutylphenyl- (32) and 3,4-dichlorophenyl- (13) derivatives showed the inhibition of c-Src kinase with IC50 values of 35.1 μM and 50.7 μM, respectively.