Oxidationof 1-methylcyclobutene (1) by PdCl2L2 and PdCl(NO2)L2 (L=CD3CN) in methylene chloride was studied with H-1 and C-13 NMR. Reaction of 1 with PdCl2L2 leads to the formation of the stable ring-opened 1-3-eta3-pi-allyl palladium complex (2). With the addition of an equimolar quantity of PdCl(NO2)L2 to the solution of complex 2, the allylic oxidation of 2 proceeds slowly via the intermediate formation of another 1-3-eta3-pi-allyl palladium complex (3). When reacting directly with PdCl(NO2)L2, 1 undergoes palladium (II)-catalyzed ring contraction to give cyclopropyl methyl ketone. Kinetic and spectral data indicate the formation of an organometallic intermediate, a product of the beta-nitritopalladation of the parent olefin 1.