Ring-opening polymerization of epsilon-caprolactone catalyzed by rare earth halides and rare earth halide-epoxide has been carried out for the first time. It was found that rare earth halides have low activities for the polymerization of epsilon-caprolactone, but in the presence of epoxide, rare earth halides are highly active for the bulk and solution polymerization of epsilon-caprolactone, with high molecular weight poly(epsilon-caprolactone) (PCL) formed. With the Ndcl(3)-20PO system, PCL with a molecular weight of 22.4 x 10(4) can be easily obtained at 30 degrees C, and the molecular weight of PCL can be increased to 42 x 10(4) at 60 degrees C with a catalyst efficiency of 100 x 10(4) g of PCL/mol of NdCl3. The catalytic activities of the rare earth halides are affected by the kind of rare earth element, halogen, epoxide, amount of added epoxide, catalyst concentration, and polymerization temperature. It has been found that rare earth halides react with epoxide and produce halogen rare earth alkoxides : (X(3-x)Ln{[OCH(R)CH2](y)X}(x) X = Cl, Br, I). A study on the polymerization mechanism showed that the resulting rare earth alkoxide bond initiates the polymerization of epsilon-caprolactone via a "coordination-insertion" mechanism with acyl-oxygen bond cleavage of the monomer during the epsilon-caprolactone polymerization catalyzed by rare earth halide-epoxide.