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We report a first-principles simulation study of phase transitions in KNO3, using our recently developed method for treating ionic molecular solids. With the interionic potentials calculated from ab initio electron charge densities of the ions, our structural static relaxation gave close fits to both the normal room-temperature (α-phase) and the ferroelectric (γ-phase) structures. Our supercell molecular-dynamics calculations closely simulated the transitions from the α phase and γ phase to the high-temperature disordered β phase, and successfully reproduced the abnormally large c-axis thermal expansion observed in experiment. Both transitions were found to be initiated by the rotations of the nitrate ions about their triad axes parallel to the c axis. Our lattice-dynamics calculations in the spirit of the quasiharmonic approximation revealed that these rotations are intimately connected to the large c-axis thermal expansion, and both of them derive from the strong anharmonicity in the system.