Involved in the degradation of the plant hormone indole-3-acetic acid (IAA) (PubMed:18205812, PubMed:23881445). Catalyzes the first step of the pathway, the conversion of IAA to 2-hydroxy-IAA (2-OH-IAA) (PubMed:23881445). Can also convert indole to indoxyl, which spontaneously dimerizes in the presence of oxygen to form the blue pigment indigo (PubMed:23881445). (indol-3-yl)acetate + H(+) + NADH + O2 = 2-hydroxy-(1H-indol-3-yl)acetate + H2O + NAD(+) H(+) + indole + NADH + O2 = H2O + indoxyl + NAD(+) Induced in the presence of IAA. Expression is probably repressed by IacR and exposure to IAA relieves this repression. Transformation of P.putida KT2440, which cannot degrade IAA, with the iac gene cluster confers the ability to grow on IAA as a sole source of carbon and energy, but not the ability to chemotaxis towards IAA. Belongs to the HpaH/HsaA monooxygenase family.