We demonstrate a non-equilibrium phase transition in a dilute thermal atomic gas. The phase transition, between states of low and high Rydberg occupancy, is induced by resonant dipole-dipole interactions between Rydberg atoms. The gas can be considered as dilute as the atoms are separated by distances much greater than the wavelength of the optical transitions used to excite them. In the frequency domain we observe a mean-field shift of the Rydberg state which results in intrinsic optical bistability above a critical Rydberg number density. In the time domain we observe critical slowing down where the recovery time to system perturbations diverges with critical exponent α = −0.53 ± 0.10. The atomic emission spectrum of the phase with high Rydberg occupancy provides evidence for a superradiant cascade.Non-equilibrium systems displaying phase transitions are found throughout nature and society, for example in ecosystems, financial markets and climate [1]. The steady state of a non-equilibrium system is a dynamical equilibrium between driving and dissipative processes. In atomic physics, one of the most studied non-equilibrium phase transitions is optical bistability where the driving is provided by a resonant laser field and the dissipation is inherent in the atom-light interaction. In most examples of optical bistability feedback is provided by an optical cavity, as in the pioneering work of Gibbs [2,3]. However, bistability can also arise in systems where many dipoles are located within a volume which is much smaller than the optical wavelength; in this case the feedback is due to resonant dipole-dipole interactions [4,5]. This latter case is known as intrinsic optical bistability [6] and has, so far, only been observed in an up-conversion process between densely packed Yb 3+ ions in a solid-state crystal host cooled to cryogenic temperatures [7]. Intrinsic optical bistability generally cannot be observed for simple two-level systems such as atomic gases, because the resonance broadening, which is larger than the line shift [8], suppresses the bistable response [9,10].A solution to this problem is provided by highlyexcited Rydberg states, where the dipole-dipole induced level shifts between neighbouring states can be much larger than the excitation linewidth. This property of optical excitation of Rydberg atoms, known as dipole blockade [11], enables a diverse range of applications in quantum many-body physics, quantum information processing [12], non-linear optics [13] and quantum optics [14][15][16][17]. An interesting feature of Rydberg systems is that the range of the interaction can be much larger than the optical excitation wavelength, giving rise to non-local interactions [18]. This also creates the possibility of observing intrinsic optical bistability, and hence non-equilibrium phase transitions [19] over macroscopic, optically-resolvable length scales.In this letter, we demonstrate a non-equilibrium phase transition in a thermal Rydberg ensemble. In contrast to previous experiments, we directly observe...