In addition to the orbital, antiferromagnetic and staggered ferroelectric ordering transitions, Ca₃Ru₂O₇ hosts yet another first-order phase transition at 48K, whose physical origin remains unresolved for the past decades. Using density functional theory calculation combined with effective model analysis, we show that this mysterious transition is in fact related to the development of additional interlayer bonding, and the associated orbital re-polarization. Our results reproduce the experimental Fermi surface and band structure very well. The previous controversy related to the ordering gap (either via the orbital order or via another finite momentum order parameter) actually occurs above the chemical potential at very high temperature, and only “appears” in the measurement due to the band shifting resulting from the re-polarization. Our study not only resolves the long-standing puzzle of the nature of this phase transition, but also reveals interesting rich interplays between multiple orderings in these multiferroic materials.