Involved in the degradation of the plant hormone indole-3-acetic acid (IAA) (PubMed:22311185). Catalyzes the first step of the pathway, the conversion of IAA to 2-hydroxy-IAA (2-OH-IAA) (By similarity). Can also convert indole to indoxyl, which spontaneously dimerizes in the presence of oxygen to form the blue pigment indigo (PubMed:22311185). (indol-3-yl)acetate + H(+) + NADH + O2 = 2-hydroxy-(1H-indol-3-yl)acetate + H2O + NAD(+) H(+) + indole + NADH + O2 = H2O + indoxyl + NAD(+) kcat is 0.88 min(-1) with indole as substrate. Optimum pH is 8.5. Induced in the presence of IAA. Mutant cannot grow with IAA as the sole carbon source. Belongs to the HpaH/HsaA monooxygenase family.