We observe the decay B0 to p pbar K∗0 with a branching fraction of (1.18 + 0.29 − 0.25 +- 0.11) * 10^−6. The statistical significance is 7.2 sigma for the signal in the low p pbar mass region. We study the decay dynamics of p pbar K∗0 and compare with p pbar K∗+. The K∗0 meson is found to be almost 100% polarized (with a fraction of (101 +- 13 +- 3)% in the helicity zero state), while the K∗+ meson has a (32 +- 17 +- 9)% fraction in the helicity zero state. The direct CP asymmetries for B0 to p pbar K∗0 and B+ to p pbar K∗+ are measured to be −0.08 +- 0.20 +- 0.02 and −0.01 +- 0.19 +- 0.02, respectively. We also study the characteristics of the low mass p pbar enhancements near threshold and the related angular distributions. These results are obtained from a 492 fb^−1 data sample collected near the Y(4S) resonance with the Belle detector at the KEKB asymmetric energy e+ e− collider.