Bicyclo[1.1.0]butane (BCB) derivatives are versatile coupling partners, and various reaction modes for their activation and transformation have been proposed. In this work, three BCB-activation modes in Rh-catalyzed BCB transformations that construct diastereoselective α-quaternary β-lactones were investigated by density functional theory calculations. Our results show that, compared with C1−C3 insertion and C−C3 oxidative addition, C2−C3 oxidative addition is more favorable. The whole catalytic cycle involves five main steps: C−H activation, oxidative addition, β-C elimination/reductive elimination, Rh walking, and aldehyde insertion/protonation. Independent gradient model, intrinsic reaction coordinate, distortion−interaction energy, and Laplacian electron-density analyses were carried out to investigate the mode of BCB activation. Our calculation also showed that aldehyde-insertion is the diastereoselectivity determining step, which is controlled by the steric effect between the ligand, methyl group, and aldehyde.