Tetrahedrites are excellent p-type thermoelectric materials with extremely low lattice thermal conductivities. The understanding of the origin of low thermal conductivity in tetrahedrites, which has been attributed to rattling vibrations of the trigonal-planar copper ions, remains limited. Neutron and synchrotron diffraction data collected on Cu12Sb4S13 as a function of temperature, demonstrate that copper rattling in tetrahedrite is a direct consequence of a tetragonal-to-cubic phase transition at 90 K, which results in a sharp increase, by approximately 200%, of the atomic displacement parameters of the trigonal-planar copper cations. A Jahn-Teller electronic instability leads to the formation of “molecular-like” Cu57+ clusters below 90 K. This suppresses copper rattling vibrations due to the strengthening of direct copper-copper interactions. First-principles calculations demonstrate that the structural phase transition opens a small band gap in the electronic density of states and eliminates the unstable phonon modes found for cubic tetrahedrite.