The mechanism of the phosphine-catalysed domino sequence of alkynoates and activated methylenes has been computationally studied. The computational results revealed that the [3 + 2] annulation sequence could be ruled out, due to a difficult Knoevenagel condensation of aromatic aldehydes and active methylenes. The reaction proceeds through a [4 + 1] annulation pathway, which involves a phosphine-catalysed MBH-type reaction followed by a [1,5]-proton shift and dehydration to afford vinyl phosphonium intermediates as four-carbon synthons in the annulation reaction. Then 1,3-dicarbonyls act as nucleophiles to attack vinyl phosphonium intermediates, subsequently leading to a stepwise [1,3]-proton shift and an intramolecular nucleophilic attack to close the five-member ring.