A Rh(III)-catalyzed cascade [3 + 2] annulation of N-phenoxyacetamides with propiolates under mild conditions using the internal oxidative O-N bond as the directing group has been achieved. This catalytic system provides a regio- and stereoselective access to benzofuran-2(3 H)-ones bearing exocyclic enamino motifs with exclusive Z configuration selectivity, acceptable to good yields and good functional group compatibility. Mechanistic investigations by experimental and density functional theory studies suggest that a consecutive process of C-H functionalization/isomerization/lactonization is likely to be involved in the reaction.