We report the first observation of the radiative charm decay $D^0 to rho^0 gamma$ and the first search for $CP$ violation in decays $D^0 to rho^0 gamma$, $phigamma$, and $overline{K}{}^{*0} gamma$, using a data sample of 943 fb$^{-1}$ collected with the Belle detector at the KEKB asymmetric-energy $e^+e^-$ collider. The branching fraction is measured to be $mathcal{B}(D^0 to rho^0 gamma)=(1.77 pm 0.30 pm 0.07) times 10^{-5}$, where the first uncertainty is statistical and the second is systematic. The obtained $CP$ asymmetries, $mathcal{A}_{CP}(D^0 to rho^0 gamma)=+0.056 pm 0.152 pm 0.006$, $mathcal{A}_{CP}(D^0 to phi gamma)=-0.094 pm 0.066 pm 0.001$, and $mathcal{A}_{CP}(D^0 to overline{K}{}^{*0} gamma)=-0.003 pm 0.020 pm 0.000$, are consistent with no $CP$ violation. We also present an improved measurement of the branching fractions $mathcal{B}(D^0 to phi gamma)=(2.76 pm 0.19 pm 0.10) times 10^{-5}$ and $mathcal{B}(D^0 to overline{K}{}^{*0} gamma)=(4.66 pm 0.21 pm 0.21) times 10^{-4}$.
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