Decomposition of α-diazo-γ-butyrolactams in the presence of aromatic and heteroaromatic amines, under Rh₂(esp)₂ catalysis, led to corresponding α-arylamino-γ-butyrolactams, which are of significant value for medicinal chemistry. The reaction scope encompasses primary as well as secondary, diversely substituted anilines and heteroaromatic amines. Insertion into the anilinic amino group was shown to be selective over amide and sulfonamide N–H insertion.