An unprecedented Rh(III)-catalyzed cascade C-H activation/Lossen rearrangement of aromatic amides with methyleneoxetanones has been realized along with a tunable C-N bond reductive elimination/trans esterification, giving divergent access to quinolinones and dihydroisoquinolinones via selective ring-opening of the four-membered lactone unit. Combined computational and experimental mechanistic studies defined the solvent-involved distinguished reaction paths, the origin of the observed chemodivergence, as well as the role of the substituent attached at the oxidizing directing group in tuning the reaction outcomes.