A one-pot three-component synthesis of multifunctionalized isoquinolones from 2-oxazolines, iodonium ylides, and carboxylic acids via Rh(III)-catalyzed oxazolinyl-directed C-H activation and tandem annulation under redox-neutral conditions has been developed. This catalytic system is characterized by readily available starting materials, a wide tolerance of functional groups, a short reaction time, and high yields. The synthetic utility of the cascade reaction was further demonstrated by a gram-scale synthesis and derivatization of the obtained products.