We previously reported a synthetic method of spirocyclohexadienones using an Pd-catalyzed intramolecular ipso-Friedel–Crafts allylic alkylation of para-substituted phenol derivatives. However, the mechanism for the step leading to spirocyclization and driving force behind the remarkably easier formation of the five-membered spirocyclohexadienone as compared with the six-membered spirocyclohexadienone were unclear. Herein, detailed density functional theory (DFT) calculations for the spirocyclization were performed to obtain a plausible reason for the observed behavior. In addition, the mechanistic basis of the characteristic ortho-selectivity in the related Pd-catalyzed intramolecular Friedel–Crafts allylic alkylation of meta-substituted phenol derivatives was elucidated. DFT calculations and experimental studies revealed that the ortho-selective allylation proceeded via an unexpected eleven-membered oxapalladacycle-mediated intramolecular Friedel–Crafts type process.