A low-valent niobium species generated from NbCl5 and 1-methyl-3,6-bis(trimethylsilyl)-1,4-cyclohexadiene (Si-Me-CHD) in combination with PPh3 catalyzed a [2+2+1]-cycloaddition reaction of 3,3-disubstituted cyclopropenes and 2 equiv of diaryl/dialkylalkynes, leading to isomeric mixtures of multisubstituted cyclopentadienes 3-5. The initial catalyst activation process was a one-electron reduction of NbCl5 with Si-Me-CHD to provide [NbCl3(μ-Cl) (L)]2 (L = PMe2Ph (6), L = PPh3 (7)) in the presence of phosphine ligands. An NMR spectroscopic time course experiment using complex 7 as the catalyst revealed an induction period for the product formation, corresponding to an additional one-electron reduction of 7 by the substrates to give catalytically active η2-alkyne complexes of NbCl3. A combined computational and experimental study clarified the mechanism of this unprecedented [2+2+1]-cyclopentadiene synthesis; a rate-determining 1,2-insertion of cyclopropene into η2-alkyne niobium species to form cyclopropane-fused metallacyclopentene followed by ring-opening β-C elimination provides a dienylalkylidene intermediate prior to incorporation of the second alkyne through carbene/alkyne metathesis. We also demonstrated the synthetic utility of the multisubstituted cyclopentadienes as the cyclopentadienyl ligands by derivatizing to the corresponding lithium cyclopentadienide, which is applicable for the synthesis of ferrocene 10.