Gold(I) catalysis of olefin activation is still a rare feature in the repertoire of that metal. Mechanistic studies on the gold(I)-catalyzed cyclopropanation of allyl-substituted sulfonium ylides, including kinetic analysis as well as detailed computational studies, reveal that the reaction proceeds through activation of the alkene moiety. Furthermore, a novel competitive allylic isomerization pathway that interconverts "linear" and "branched" allylic isomers is uncovered. The subtle interplay of cyclopropanation and olefin isomerization results in an intriguing domino process where two independent catalytic transformations combine with near-perfect regio- and stereoselectivities.