The intramolecular Pauson-Khand reaction of 2-oxazolone derivatives with a suitable heptynyl appendage gave exclusively the corresponding 4-hydroxy-6-substituted-9-oxa-1-azatricyclo[6.2.1.0(5,11)]undec-5-ene-7,10-diones. On the basis of this newly developed Pauson-Khand reaction of 2-oxazolone-alkyne derivatives, the first total synthesis of (+/-)-8alpha-hydroxystreptazolone was accomplished in a highly stereoselective manner. In addition, (+/-)-7-epi-8alpha-hydroxystreptazolone was also synthesized.