With the aid of computations and experiments, the detailed mechanism of the phosphine-catalyzed [3+2] cycloaddition reactions of allenoates and electron-deficient alkenes has been investigated. It was found that this reaction includes four consecutive processes: 1) In situ generation of a 1,3-dipole from allenoate and phosphine, 2) stepwise [3+2] cycloaddition, 3) a water-catalyzed [1,2]-hydrogen shift, and 4) elimination of the phosphine catalyst. In situ generation of the 1,3-dipole is key to all nucleophilic phosphine-catalyzed reactions. Through a kinetic study we have shown that the generation of the 1,3-dipole is the rate-determining step of the phosphine-catalyzed [3+2] cycloaddition reaction of allenoates and electron-deficient alkenes. DFT calculations and FMO analysis revealed that an electron-withdrawing group is required in the allene to ensure the generation of the 1,3-dipole kinetically and thermodynamically. Atoms-in-molecules (AIM) theory was used to analyze the stability of the 1,3-dipole. The regioselectivity of the [3+2] cycloaddition can be rationalized very well by FMO and AIM theories. Isotopic labeling experiments combined with DFT calculations showed that the commonly accepted intramolecular [1,2]-proton shift should be corrected to a water-catalyzed [1,2]-proton shift. Additional isotopic labeling experiments of the hetero-[3+2] cycloaddition of allenoates and electron-deficient imines further support this finding. This investigation has also been extended to the study of the phosphine-catalyzed [3+2] cycloaddition reaction of alkynoates as the three-carbon synthon, which showed that the generation of the 1,3-dipole in this reaction also occurs by a water-catalyzed process.