A copper-catalyzed regioselective [3+2] annulation of malonate-tethered acyl oximes with isatins was developed, affording valuable 2,3-dihydrooxazole-spirooxindoles in moderate to good yields with excellent diastereoselectivity. The reaction sequence involves Cu(I) initiated N–O bond cleavage, 1,5-HAT and C–N bond formation. The protocol features mild reaction conditions and broad substrate scope. DFT calculations demonstrated that the [3+2] annulation pathway is more energetically favourable in both kinetics and thermodynamics.