This paper reports for the first time an in-depth study based on first-principle calculations to unveil the underlying physics that governs the pressure induced structural phase transitions of Hg2Cl2 compound at room temperature. The phonon dispersion relations and phonon density of states have been critically explored for the tetragonal and orthorhombic phases of the compound to unveil the phonon modes associated with the phase transitions. The nature of the phase transition whether it is “displacive” or of “order–disorder” type has also been explored. We believe that the present study based on density functional theory and Born–Oppenheimer molecular dynamics calculations will help understand the underlying physics behind the above referred phase transitions and the anisotropic behavior of the compound, which in turn bears technologically significant relevance for its applications in optoelectronic devices, acousto-optic tunable filters, and in fiber-optic communication systems.