The metal-insulator transition of the Magneli phase Ti4O7 is studied by means of augmented spherical wave (ASW) electronic structure calculations as based on density functional theory and the local density approximation. The results show that the metal-insulator transition arises from a complex interplay of charge order, orbital order, and singlet formation of those Ti 3d states which mediate metal-metal bonding inside the four-atom chains characteristic of the material. Ti4O7 thus combines important aspects of Fe3O4 and VO2. While the charge ordering closely resembles that observed at the Verwey transition, the orbital order and singlet formation appear to be identical to the mechanisms driving the metal-insulator transition of vanadium dioxide. (C) 2004 Elsevier B.V. All rights reserved.