Despite their significant importance to numerous fields, the difficulties in direct and diverse synthesis of α-hydroxy-γ-lactams pose substantial obstacles to their practical applications. Here, we designed a nitrogen and TiO2 co-doped graphitic carbon-supported material with atomically dispersed cobalt sites (CoSA-N/NC-TiO2), which was successfully applied as a multifunctional catalyst to establish a general method for direct construction of α-hydroxy-γ-lactams from cheap and abundant nitro(hetero)arenes, aldehydes, and H2O with alkynoates. The striking features of operational simplicity, broad substrate and functionality compatibility (>100 examples), high step and atom efficiency, good selectivity, and exceptional catalyst reusability highlight the practicality of this new catalytic transformation. Mechanistic studies reveal that the active CoN4 species and the dopants exhibit a synergistic effect on the formation of key acid-masked nitrones; their subsequent nucleophilic addition to the alkynoates followed by successive reduction, alkenyl hydration, and intramolecular ester ammonolysis delivers the desired products. In this work, the concept of reduction interruption leading to new reaction route will open a door to further develop useful transformations by rational catalyst design.