This paper describes the reactions of N-salicylideneamines with diarylketenes generated from thermal decomposition of the 2-diazo-1,2- diarylethanones. An equimolar reaction of the N-salicylidenebenzhydrylamine with diphenylketene affords a mixture of 2-[(benzhydrylimino)methyl]phenyl-2,2- diphenylacetate as a major product and 1-benzhydryl-3,3-diphenyl-4-[2′-(O- diphenylacyl)hydroxyphenyl]-2-azetidinone as a minor product. The reactions of various N-salicylideneamines with 2.2 molar equivalents of 2-diazo-1,2- diarylethanones have been carried out to afford 1-substituted-3,3-diaryl-4- [2′-(O-diarylacyl)hydroxyphenyl]-2-azetidinones as sole product in excellent yields. The products, characterized on the basis of satisfactory analytical and spectral data, have shown moderate to good antimicrobial activity against some bacteria and fungi. Among the fourteen compounds in the series, the 2-azetidinone 4l with a 4-chlorophenyl group on β-lactam ring nitrogen and 4-methylphenyl groups on β-lactam ring C-3 position is the most active compound.