A detailed theoretical study of the rearrangement of allene oxide to cyclopropanone and the racemization of substituted cyclopropanones and the isomerization of substituted cyclopropanones is presented. The rearrangement of allene oxide to cyclopropanone was found to proceed in a stepwise fashion in which allene oxide first undergoes conversion to oxyallyl via a newly found transition structure with subsequent ring closure of the oxyallyl to cyclopropanone. It is shown that a previously found transition structure is on the pathway that results in the racemization of chiral-substituted cyclopropanones. Anew transition structure was also located that accounts for the previously observed conversion of cis-2,3-di-tert-butylcyclopropanone to its trans diastereomer. The discussion is based on the results of DFT and CASSCF methods. IRC calculations were carried out for all transition structures located. Single-point energies were calculated with the CASPT2N, QCISD(T), and UQCISD(T) methods. Good agreement was found between the calculated results and those available from experiment.