The compounds characterized by the presence of a λ5-phosphorus functionality at the α-position with respect to the diazo moiety, here referred to as λ5-phosphorus-containing α-diazo compounds (PCDCs), represent a vast class of extremely versatile reagents in organic chemistry and are particularly useful in the preparation of phosphonate- and phosphinoxide-functionalized molecules. Indeed, thanks to the high reactivity of the diazo moiety, PCDCs can be induced to undergo a wide variety of chemical transformations. Among them are carbon-hydrogen, as well as heteroatom-hydrogen insertion reactions, cyclopropanation, ylide formation, Wolff rearrangement, and cycloaddition reactions. PCDCs can be easily prepared from readily accessible precursors by a variety of different methods, such as diazotization, Bamford-Stevens-type elimination, and diazo transfer reactions. This evidence along with their relative stability and manageability make them appealing tools in organic synthesis. This Review aims to demonstrate the ongoing utility of PCDCs in the modern preparation of different classes of phosphorus-containing compounds, phosphonates, in particular. Furthermore, to address the lack of precedent collective papers, this Review also summarizes the methods for PCDCs preparation.