The strained keto diol 5 underwent an unexpected rearrangement in the presence of H2O-TEA-CH3CN at 20 °C to afford two isomeric products 6 and 7. The latter two compounds undergo further conversion to carboxy keto diol 8. The structures of 6–8 were elucidated by heterero COSY experiments and in the case of 6 by X-ray diffraction. The transformation of 5 to 6 and 7 is interpreted as involving an unusual retroaddition of a benzylic anion to a cyclobutanone 5→10. This is facilitated by subsequent readdition of this anion to another proximally located ketone with formation of a cyclopropanol 11, which is immediately converted to 6 and 7.