The 'expanded fulleride' Cs(3)C(60) is an antiferromagnetic insulator in its normal state and becomes a molecular superconductor with T(c) as high as 38 K under pressure. There is mounting evidence that superconductivity is not of the conventional BCS type and electron-electron interactions are essential for its explanation. Here we present evidence for the dynamic Jahn-Teller effect as the source of the dramatic change in electronic structure occurring during the transition from the metallic to the localized state. We apply infrared spectroscopy, which can detect subtle changes in the shape of the C(60)3- ion due to the Jahn-Teller distortion. The temperature dependence of the spectra in the insulating phase can be explained by the gradual transformation from two temperature-dependent solid-state conformers to a single one, typical and unique for Jahn-Teller systems. These results unequivocally establish the relevance of the dynamic Jahn-Teller effect to overcoming Hund's rule and forming a low-spin state, leading to a magnetic Mott-Jahn-Teller insulator.