The reduction of condensed imides 1 with sodium borohydride proceeds regio- and stereoselectively to yield the hydroxylactams 2, 3 and 4. AM1 calculations of the reactants and products reveal that the regiochemistry of the reductions seems to be controlled by both electronic and steric effects. The regio- and stereoselectivity of the reductions are dramatically improved by the presence of magnesium perchlorate. This is interpreted in terms of a chelate complex formation between the carbonyl group, isoxazoline oxygen atom and magnesium ion. The presence of p-toluenesulfonic acid (p-TsOH) also improves the regioselectivity, but lowers the chemoselectivity.