A novel substrate-regulated [4+1] annulation of α-imidoyl sulfoxonium ylides with diazoketones under catalyst-free conditions is described. The reaction proceeds through a coupling of sulfoxonium ylides and in situ-generated ketenes to form the key reactive zwitterionic intermediates, followed by selective formation of C-C or C-O bonds to achieve five-membered ring systems. The cascade reaction permits the direct synthesis of synthetically useful 2-indanones and 3(2H)-furanones, which expands the reaction pattern of sulfoxonium ylides in annulation transformation.