The negatively charged nitrogen-vacancy (NV(-)) center in diamond is considered to be one of the most promising solid state systems for quantum information applications. Excited states of the NV(-) center play a center role in the proposed applications. Using a combination of first-principles calculations and vibronic interaction model analysis, we establish the presence of a dynamic Jahn-Teller effect in the (3)E excited state. The calculated temperature-dependent dephasing rate for the zero phonon line as well as the splitting of the first two vibronic states are in good agreement with experiment.