Herein, we report a three-component stereoselective cyclopropanation of vinyl sulfoxonium ylides with indane 1,3-dione and aldehydes under mild reaction conditions. In contrast to previous reports, the present work shows that electrophilic addition selectively takes place at the α-position of the vinyl sulfoxonium ylide. The interesting feature of this approach is that the multicomponent reaction selectively proceeds because of the difference in nucleophilic reactivity of vinyl sulfoxonium ylides and indane 1,3-dione with electrophilic partners, such as aldehydes and in situ generated arylidenes. Additionally, density functional theory (DFT) studies were conducted to investigate the difference in the reactivity of these reactants, as well as to unveil the mechanism of this three-component reaction. Furthermore, non-covalent interactions of selectivity-determining transition states explain the origin of the diastereoselectivity of cyclopropanation.