Mechanistic study on the stereoselective construction of [2.1.2] bicyclic lactone skeleton via Pd(0)-catalyzed intramolecular allylic alkylation was described. The observed excellent stereoselectivity is likely due to Pd(0)-catalyzed equilibration of highly strained [2.1.2] bicyclic lactone framework via π-σ-π isomerization of π-allylpalladium complex. An efficient synthetic route to allylic carbonate as a requisite