A practical one-pot isoindolinone synthesis enabled by Rh-III catalysis was developed. The advantage of this protocol is that it does not require pre-preparation of amide substrates, because Rh-III participates in two reactions independently. This mild, operationally multicomponent process transforms a wide variety of commercially available aldehydes into the corresponding gamma-lactams in good yields, thereby demonstrating that N-pyridin-2-yl benzamide is an effective directing group. Notably, the anxiolytic drugs pagoclone and pazinaclone can be directly prepared by this methodology.