Solid-state irradiation of the crystalline inclusion complex of (E)-stilbene in gamma-cyclodextrin (gamma-CD) yields a single isomer of syn-tetraphenylcyclobutane stereoselectively in high yield. In contrast, the photodimerization of stilbene in solution is very inefficient and unselective, and no photodimer is observed even upon prolonged irradiation of pure crystals. The monosubstituted stilbenes form a pair of photodimers stereoselectively, viz. the syn head-to-head and syn head-to-tail isomers, in comparable yields. The photodimer yields of about 70% and the biphasic decay kinetics of the excited stilbene (as established by picosecond time-resolved diffuse-reflectance spectroscopy) indicate that the stilbene guests are located in at least two distinct sites in the gamma-CD crystal lattice, i.e., a dimerization site where excited stilbene is in close reach of another stilbene guest molecule and an isomerization site where excited stilbene does not find a close neighbor for dimerization and thus undergoes trans --> cis isomerization only.