A formal (4+1)‐annulation strategy between sulfur ylides and 1,3‐dienes was developed to afford functionalized cyclopentanoids. The process consists of a stereoselective cyclopropanation reaction followed, in situ, by a stereospecific MgI2‐catalyzed vinylcyclopropane–cyclopentene rearrangement. The use of chiral sulfur ylides provided cyclopentanoids with excellent enantiocontrol. A combined experimental and computational mechanistic study showed that the stereospecificity of the rearrangement could be accounted for by a double SN2 reaction mechanism involving iodide.