Phosphine-promoted unprecedented [3 + 2] annulation reactions via ring expansion by using 2-benzylidene-indane-1,3-diones and diynoates for the synthesis of biologically interesting novel naphthoquinones fused with a five-membered ring bearing a phosphorus ylide up to 78% yield are described. Further ring contraction through [1,5] sigmatropic rearrangement to the spiro indan-1,3-diones by mCPBA oxidation was revealed and inferred through oxidation, followed by protonation. The relevant structures were confirmed by single-crystal X-ray diffraction. Electrochemical studies show that the naphthoquinones and lactones with phosphorus ylides could be applied to redox colorimetric materials.