2-Aminothioisomünchnones, a well-known family of masked dipoles, react with aromatic aldehydes in a domino cascade reaction that produces episulfides (thiiranes) or beta-lactams (2-azetidinones). This sequence is initiated by a [3+2] dipolar cycloaddition followed by ring opening of cycloadducts and intramolecular rearrangement to afford these unusual ring contractions. The nature of the reaction products depends on the structural characteristics of the starting dipole and the experimental conditions. Episulfides are obtained selectively as cis isomers with respect to both aryl groups, whereas beta-lactams are produced as cis/trans mixtures. These structural features were determined unequivocally by X-ray crystallographic analysis. The beta-lactams still possessed a flexible acyclic chain containing sulfur, a salient lead modification of the bioactive cyclic penems and cephems. The preferential production of exo transition structures was rationalized with the aid of computational calculations at the B3LYP/6-31G* level.