The aza-Wittig reaction of iminophosphoranes (X3P=NH, X=H and Cl) with formaldehyde (H2CO) was investigated in gas phase and in water using ab initio MP2/6-31G** level of theory and the self-consistent reaction field theory (isodensity polarized continuum model, IPCM). In the gas phase, the aza-Wittig reaction was predicted to be a two-step process with two dipole-dipole complexes, one four-membered ring intermediate and two transition states. The potential energy profiles along the minima energy path in gas phase and in water were obtained. The solvent effects on the thermodynamic and kinetic properties of this reaction were discussed. This aza-Wittig reaction is more favorable for X=H than for X=Cl, both in the gas phase and in water.