Dimethyl 2-acetoxy- and dimethyl 2-benzoyloxy-benzoylphosphonate undergo cyclisation and deoxygenation in the presence of excess trimethyl phosphite to give dimethyl (3-methyl-1-benzofuran-2-yl)phosphonate and dimethyl (3-phenyl-1-benzofuran-2-yl)phosphonate, respectively. The reaction pathway has been shown to involve phosphite attack on initially formed tricyclic dioxaphospholane intermediates with the subsequent loss of two molecules of trimethyl phosphate. In the absence of additional trimethyl phosphite the initially formed tricyclic dioxaphospholane intermediates lose one molecule of trimethyl phosphate and then undergo a novel rearrangement to give β-ketophosphonates. The mechanism for this reaction helps explain some previously reported epoxide rearrangements. In contrast, the initially formed anionic intermediate from the reaction of dimethyl 2-benzoyloxymethylbenzoylphosphonate with trimethyl phosphite undergoes decomposition to give a carbene intermediate which is trapped by the trimethyl phosphite to give an ylidic phosphonate.