Multi-component reactions to form heterocyclic compounds possessing quinolone, benzothiazole or quinazolinone moieties are very well-known. Various derivatives of these molecules exhibit remarkable medicinal properties. Based on this fact, the present paper targets for the first time to synthesize a fused molecule containing all these three important heterocyclic units through a three-component one-pot synthesis via cyclocondensation reaction. The molecular iodine catalyzes this facile reaction of substituted-2-phenoxyquinoline-3-carbaldehyde (or) substituted-2-phenylthioquinoline-3-carbaldehyde, 2-aminobenzothiazole and 1,3-cyclohexanedione in ethanol to synthesize derivatives of 12-(2-oxo-1,2-dihydroquinolin-3-yl)-2,3,4,12-tetrahydro-1H-benzo[4,5]thiazolo[2,3-b] quinazolin-1-one with excellent yields. All the products isolated in pure form were characterized by spectroscopic as well as analytical data. The mechanism reveals that the reaction proceeds through intramolecular dehydration and further leads to the formation of an unexpected product from the quinoline attached phenoxy group to the corresponding ketone by the elimination of phenol/thiophenol molecule. The present methodology offers an eco-friendly synthetic route, excellent yields, mild reaction conditions, inexpensive catalyst, short reaction time and very easy work-up. © 2020 Taylor & Francis Group, LLC.