The synthesis of novel, highly functionalized 5-hydroxy 3-pyrrolin-2-ones via a two-step procedure involving an addition reaction between KCN and corresponding chalcones, followed by ring condensation of the obtained β-cyano ketones with het(aryl)aldehydes under basic conditions is described. This protocol enables the preparation of various 3,5-di-aryl/heteroaryl-4-benzyl substituted α,β-unsaturated γ-hydroxy butyrolactams, which are subjects of significant interest to synthetic organic and medicinal chemistry.