Diazo ketones derived from N-p-tolylsulfonyl (tosyl)-protected α- and β-amino acids have been synthesized and their diazo decomposition under standard Wolff rearrangement conditions, PhCO2Ag–Et3N–MeOH, has been investigated. It is observed that, under these conditions, several different reaction pathways, including direct carbene N–H insertion, are possible. The reaction is markedly affected by the N-protecting group, the substrate structure and solvent. For those diazo ketones derived from N-tosyl-protected β-amino acids, the diazo decomposition with anhydrous THF as solvent and PhCO2Ag dissolved in Et3N as catalyst gives the corresponding 5-substituted pyrrolidinones in excellent yields.