High yield synthesis of 1,2-dihydropyrimidines by Rh(II)-catalyzed reaction of diazocarbonyl compounds with 1,4-di- and 1,4,5-trisubstituted pyrazoles is reported. This reaction represents the first example of a carbenoid insertion into an N-N bond and provides a novel approach to 4-unsubstituted 1,2-dihydropyrimidines with a broad range of functional group tolerance. According to DFT calculations the pyrazole ring expansion proceeds via the sequential formation of the metal-bound pyrazolium ylide, metal-free pyrazolium ylide and 1,5-diazahexatriene followed by 1,6-cyclization.