A simple and efficient three components domino reaction of γ-butyrolactam (2-pyrrolidinone), aromatic aldehyde and substituted thiophenol catalyzed by elemental iodine resulted in the formation of 1-((phenylthio)(phenyl)methyl)pyrrolidin-2-one derivatives. The stability of the synthesized analogues was evaluated in stimulated gastric fluid (SGF) and bovine serum albumin (BSA). In vitro anticancer activity was investigated in the low micromolar range and a few analogues were found to possess good activity. This current protocol provides several advantages like shorter reaction time, excellent yield and convenient work-up. © 2012 The Royal Society of Chemistry.