A method for the synthesis of allyl substituted γ-butenolides via carbonyl ylide rearrangement of vinyl sulfoxonium ylide-derived carbenes has been developed. At rt, the mechanism involves a carbonyl ylide generation/allyloxy furan formation/[3,3]-sigmatropic rearrangement/isomerization sequence for the generation of 3-allyl butenolides. At 70 °C, instead of the final isomerization step, the resulting [3,3]-sigmatropic rearrangement product undergoes further [3,3]-sigmatropic rearrangement to produce 5-allyl butenolide. In the absence of the catalyst, the reaction affords a diene via [2,3]-sigmatropic rearrangement.