γ-Lactams are valuable heterocycles in synthetic chemistry and drug development. Here, we report a reductive aza-Pauson-Khand reaction (aza-PKR) of an alkyne, a nitrile, and Co2(CO)8. A wide array of bicyclic α,β-unsaturated γ-lactams containing two adjacent stereocenters, including an all-carbon quaternary center, from alkyne-tethered malononitriles are efficiently accessed in high diastereoselectivity. Preliminary mechanistic investigations by experiments and DFT calculations reveal that the reaction undergoes an aza-PKR process followed by a in situ reduction. The reducing reagent generated in situ from water also provides a practical tool for deuterium incorporation into the γ-position of lactams using D2O as the deuterium source. This study represents a new mode for [2 + 2 + 1] cycloaddition that enables the direct use of nitrile in aza-heterocycle synthesis.