What is the consensus on the CIA's involvement in the Indonesian mass killings of 1965?

From my research, there doesn't appear to be any evidence that the CIA (or any US agency) "highly encouraged" the massacre. That being said, the US and UK definitely engaged in propaganda efforts against the PKI (Indonesia's Communist party), and they did provide material support for the army in it's civil war against PKI rebels, but not until after it had become clear that the Army was the new defacto government of Indonesia.

I'm sure you've done some research on the topic, but I'll provide a brief overview for readers who aren't familiar with the issue. The whole thing began on September 30, 1965 when somebody attacked and killed 6 senior generals in the Indonesian Army, and several divisions attempted to seize control of the army. The coup was very sloppy, poorly planned, and was defeated in a manner of hours. The event was immediately blamed on the PKI, though some sources think that this could have been a frame up, or false flag attack. Regardless, extensive and vitriolic propaganda immediately lashed out at the PKI, and the Indonesian Army began using the public outrage to garner massive political support for destroying the PKI, which would leave them as the dominant political force in Indonesia.

It was at this point that the US and UK began propaganda campaigns against the PKI. This undoubtedly happened, and was in line with standing US policy of opposing Communist movements around the world. However, all reports indicate that physical support for the Army didn't begin until nearly a month later, in late October/early November.

The Army didn't waste any time inflaming and exploiting public anger, and by October 10th they had begun exterminating PKI supporters all across the country. In most cases the PKI was not ready to resist them, and so they fell quickly, but resistance in central Java was strong, and the Army had to send multiple divisions to defeat the PKI rebels. It is at this point that the massacres are thought to have started.

So, to your primary question about US (specifically CIA) involvement: It seems clear that the CIA was involved in the propaganda campaign against the PKI. However, they were not the first or only source of anti-PKI propaganda, and the violent reaction against the PKI was not instigated by the US. It's also abundantly clear that forces in the Indonesian Army saw an opportunity to grab power for themselves, and they would have engaged in that course of action (and would almost certainly have succeeded) completely without US help.

However, that clearly doesn't absolve the US from its support for what ultimately became a political purge. The US did provide material support for the Indonesian Army in it's crusade to eradicate the PKI, but this was clearly an extension of real politic, that is to say, a desire to ingratiate the US government with the faction that was to become the next ruling party of Indonesia, which was of significant strategic interest to the US.

As for "applauding the massacre," that's also too simplistic a claim, though not entirely untrue. It's clear that there were many people in the West who were pleased at the destruction of Communist influence in Indonesia. That being said, that doesn't mean they were happy about the deaths of some 500,000+ people. The US provided material aid in the form of medicine and communications equipment to the Army for weeks after it had become known that the Army was engaging in the mass extermination of PKI members. Therefore, the US is clearly guilty of aiding people engaged in mass murder.

(Please excuse me while I editorialize a bit here) However, to blame the US for the killings is both historically incorrect and deeply discriminatory. The Indonesian Army and people (for many of the participants in the massacre were student groups, religious organizations, and local militias) chose to unleash their personal anger on the PKI by murdering tens of thousands of people, and there are no indications that the US was in any way "in charge" of the proceedings.

If this isn't representative of your position, I apologize, but in cases like this I often hear people place blame squarely on the US for these incidents. Such accusations are extremely troublesome because of how insulting and degrading they are to the indigenous people of the nation being discussed. The Indonesian people were not puppets or stooges of the CIA, and (unfortunately) they would have massacred their countrymen with or without the help of the US. To take away their personal agency by ascribing their actions to the nefarious intervention of some foreign power is to absolve them of responsibility for their actions, and seems to suggest the idea that "those people" were not capable of political determinism without Western guidance. This is obviously false, and we need to be careful about diminishing and degrading the actions of local populations when we talk about the effects of Western intervention.

Sorry for going a little overboard, but claiming "literally everything is entirely the US's fault" is a huge pet peeve of mine when it comes to discussing international intervention.