We report the use of bifunctional starting materials (ketoacids) in a diastereoselective Passerini three‐center‐two‐component reaction. Study of the reaction scope revealed the required structural features for stereoselectivity in the isocyanide addition. In this system, an interesting isomerization of the primary Passerini product – the α‐carboxamido lactone – into an atypical product, an α‐hydroxy imide, was found to occur under acidic conditions. Furthermore, enantioenriched Passerini products can be generated from an enantioenriched ketoacid obtained by chemoenzymatic synthesis.