A highly diastereoselective and chemoselective (3 + 2) transannulation of 1,2,3-thiadiazoles with cyanoepoxides has been discovered. The use of sterically larger DPEPhos allows the preparation of cis-epoxyl isothiazoles from cis-cyanoepoxides in up to 95% yields and 100 : 0 dr, while the use of sterically smaller DPPF allows the synthesis of trans-products from cis- or trans-cyanoepoxides in up to 95% yields and 100 : 0 dr. Bisphosphines and epoxides play dual roles. Bisphosphines serve not only as ligands, but also as catalysts to catalyze the isomerization of cis-epoxides to trans-isomers. The diastereoselectivity is controlled by the kinetic competition between the direct transannulation of cis-cyanoepoxides and the bisphosphine-catalyzed isomerization of cis-products. The epoxy group's large steric hindrance guarantees excellent chemoselectivity toward the (3 + 2) annulation, and its electron-withdrawing ability significantly improves the reactivity of the adjacent cyano group. To address the controversy over the organorhodium intermediates, we suggest the resonation between Lee's umpolung 1,3-dipoles, Bao's cyclometalated Rh(III) complexes, and our thioacyl-coordinated Rh(I) carbenes. Stereospecific access to isothiazole-fused γ-lactone is also developed.