The mechanism of Rh-catalyzed (5+2) cycloadditions of 3-acyloxy-1,4-enyne (ACE) and alkynes is investigated using density functional theory calculations. The catalytic cycle involves 1,2-acyloxy migration, alkyne insertion, and reductive elimination to form the cycloheptatriene product. In contrast to the (5+2) cycloadditions with vinylcyclopropanes (VCP), in which alkyne inserts into a rhodium-allyl bond, alkyne insertion into a Rh–C(sp2) bond is preferred. The 1,2-acyloxy migration is found to be the rate-determining step of the catalytic cycle. The electron-rich p-dimethylaminobenzoate substrate promotes 1,2-acyloxy migration and significantly increases the reactivity. In the regioselectivity-determining alkyne insertion step, the alkyne substituent prefers to be distal to the forming C–C bond and thus distal to the OAc group in the product.