A novel oxidative coupling of aldehydes to form C3-substituted phthalides facilitated by co-operative dual catalysis of a Rh(III) complex and an aryl amine is reported. The reaction involves a cascade ortho C-H activation-insertion-annulation sequence. This methodology is efficient and applicable for the homo- and heterocoupling of various functionalized aldehydes generating the corresponding phthalides in moderate to high yields.