Tandem intramolecular generation and rearrangement of allylic oxonium ylides from oc-diazo P-keto esters has been effected with the aid of dirhodium(II) tetrakis[N-phthaloyl-(S)-tert-leucinate] in toluene, providing benzofuran-3-ones via [2,3]-sigmatropic rearrangement in up to 76% cc. In systems with crotyl and prenyl substituents, products arising from the less common [1,2]-Stevens rearrangement as a side reaction have also been obtained in up to 66% ee. It is suggested that competitive [2,3]- and [1,2]-rearrangements proceed through a common, chiral rhodium(II)-bound oxonium ylide intermediate. (C) 2001 Elsevier Science Ltd. All rights reserved.