A Rh(III)-catalyzed oxidative [4 + 1] cycloaddition of benzohydroxamic acids and α-diazoesters is achieved to afford benzolactams in up to 93% yields. With the N-OAc amido moiety as a directing group, the ortho-C–H is selectively functionalized and the catalytic reaction exhibits excellent tolerance to different functional substituents. A notable rhodacyclic complex is isolated and structurally characterized, suggesting that C–H/N–H cyclometallation is a key step in the catalytic cycle.