A novel samarium diiodide (SmI2) promoted intramolecular cyclization of beta-ketoisothiocyanate, derived from alpha,beta-unsaturated esters and ammonium thiocyanate led to alpha-hydroxythiolactams and/or thiolactams in high yields. Treatment of beta-ketoisothiocyanate with two equivalents of SmI2 gave a mixture of alpha-hydroxythiolactam and thiolactam. Four equivalents of SmI2 afforded only thiolactam in high yields. The intramolecular cyclization took place with high to complete stereoselectivity. A mechanism to explain this transformation is proposed.