Bidentate ligands can lead to stable eta(1)-allyl complexes of Pd(II). A novel chelating phosphonite-oxazoline P,N ligand, abbreviated NOPOMe2, has been prepared by reaction of 6-chloro-6H-dibenz[c,e][1,2]oxaphosphorin with the lithium alcoholate derived from 4,4-dimethyl-2-(1-hydroxy-1-methylethyl)-4,5-dihydrooxazole. Its reaction with [Pd(eta(3)-C3H5)(mu-Cl)](2) afforded the new eta(1)-allyl Pd complex [PdCl(eta(1)-C3H5)(NOPOMe2)] 2 in 91% yield. This constitutes a still rare example of structurally characterized eta(1)-allyl Pd(II) complex. Chloride abstraction led to the corresponding cationic eta(3)-allyl complex [Pd(eta(3)-C3H5)(NOPOMe2)]PF6 3, which has also been characterized by X-ray diffraction. CO insertion into the Pd-C sigma-bond of the eta(1)-allyl ligand of 2 afforded the corresponding 3-butenoyl palladium complex [PdCl{C(O)C3H5}(NOPOMe2)] 4 under mild conditions, which supports the view that CO insertion into eta(3)-allyl palladium cationic complexes occurs via first coordination of the counterion to form a more reactive eta(1)-allyl intermediate.