A new reactivity pattern of Rh-2(II)-Narylnitrenes was discovered that facilitates the synthesis of medium-sized N-heterocycles from ortho-cyclobutanol-substituted aryl azides. The key ring-expansion step of the catalytic cycle is both chemoselective and stereospecific. Our mechanistic experiments implicate the formation of a rhodium N-arylnitrene catalytic intermediate and reveal that spa(3) C-H bond amination of this electrophilic species is competitive with the ring-expansion process.