The mechanism of dual 1,3-dipolar cycloaddition reaction of CO2 with isocyanides and alkynes was studied using DFT calculations. The calculations show that this three-component reaction takes place from the nucleophilic attack of isocyanides to alkynes with the generation of 1,3-dipolar active species, which requires the largest energy barrier (24.3 kcal mol(-1)) and can be regarded as the rate-determining step for the entire reaction. From 1,3-dipolar species, the desired spiro compound is obtained through the energy-favorable dual 1,3-dipolar cycloaddition channel, including successive asynchronous concerted cycloaddition of CO2 with the 1,3-dipole and cycloaddition of 1,3-dipole with the resultant lactone. Additionally, the competing nucleophilic addition of 1,3-dipole with alkynes could lead to the production of 1,5-dipolar intermediate, which will alternatively react with isocyanides or CO2 and generate several byproducts. The investigations on the substituent effect of both substrates indicate that the substituents on alkynes play the more significant roles in controlling the rate and selectivity of the reaction than those on isocyanides. The moderate electron-withdrawing and conjugate groups on alkynes not only favor the generation of the 1,3-dipole, but also stabilize the negative charge on these species without losing reactivity.