Reaction of Meldrum's acid with 3,4-bis(chloromethyl)-2,5-dimethylthiophene (1) or 3,4-bis(bromomethyl)-2,5-dimethylthiophene (2) produces the kinetically favored C,O-dialkylation product, 1,3,7,7-tetramethyl-4H,10H-6,8,9-trioxa-2-thiabenz[f]azulen-5-one (4). Recrystallization of 4 from refluxing methanol results in the methanolysis product 5-(4-methoxymethyl-2,5-dimethylthiophen-3-ylmethyl)-2,2-dimethyl[1,3]dioxane-4,6-dione (5). Attempts to isomerize 4 to the thermodynamically favored C,C-dialkylation product, 1,3-dimethyl-5,6-dihydro-4H-cyclopenta[c]thiophene(2-spiro-5)2,2-dimethyl-4,6-dione (8), result in the formation of 1,3-dimethyl-7,8-dihydro-4H-thieno[3,4-c]oxepin-6-one (6). The transformation occurs via a retro-Diels-Alder elimination of acetone followed by hydrolysis and decarboxylation of the resulting ketene. The ketene is trapped by tert-butyl alcohol, furnishing 1,3-dimethyl-6-oxo-7,8-dihydro-4H,6H-thieno[3,4-c]oxepine-7-carboxylic acid tert-butyl ester (7). All compounds are characterized spectroscopically as well as by X-ray crystallography of products 4-7.