Dynamical Singlets and Correlation-Assisted Peierls Transition in<mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML" display="inline"><mml:msub><mml:mrow><mml:mi mathvariant="normal">V</mml:mi><mml:mi mathvariant="normal">O</mml:mi></mml:mrow><mml:mn>2</mml:mn></mml:msub></mml:math>

A theory of the metal-insulator transition in vanadium dioxide from the high- temperature rutile to the low- temperature monoclinic phase is proposed on the basis of cluster dynamical mean-field theory, in conjunction with the density functional scheme. The interplay of strong electronic Coulomb interactions and structural distortions, in particular, the dimerization of vanadium atoms in the low-temperature phase, plays a crucial role. We find that VO2 is not a conventional Mott insulator, but that the formation of dynamical V-V singlet pairs due to strong Coulomb correlations is necessary to trigger the opening of a Peierls gap.