The dynamics of capillary breakup of a fluid thread of a dilute polymer solution near the Θ-point is studied using a molecular approach. Several regimes arising during the development of capillary instability have been identified and investigated. We show that in the course of thread thinning, the macromolecules can undergo a coil−stretch transition and analyze its kinetics. In the process of chain stretching, the inertial regime turns into a viscoelastic stage and then a highly viscous quasi-Newtonian regime with almost completely stretched macromolecules. In the viscoelastic regime, the hydrodynamic friction force is proportional to the chain extension, and the radius of the thread decreases according to a power law. This differs from the experimentally observed exponential law arising from the linear dependence of the friction force on the contour length of the chain. A possible physical mechanism giving rise to an exponential thinning of the thread formed by dilute polymer solution is discussed. We further established that once the thread radius becomes smaller than the chain contour length after the end of the viscoelastic regime, such ultrafine thread becomes unstable with respect to the development of annular solvent droplets. It is predicted that the formation of the droplets occurs with no energy barrier, so a "beads-on-string" structure emerges readily as a result.