The negatively charged nitrogen-vacancy (NV-) centers in diamond, with their unique spin and optical properties, have emerged as a promising solid system for studying spin related phenomena. The local spin states of the NV- center can be accessed and manipulated optically at a single-site level, making it suitable for quantum information applications. Despite much research efforts, our understanding of the excited state structure of this system is still limited. Using a combination of first-principles calculations and vibronic interaction model analysis, we establish the presence of a dynamic Jahn-Teller (JT) effect in the E excited state with a barrier to tunneling splitting ratio of 0.29. The E excited state of the NV- center plays a central role in the optical initialization and readout of the spin states and in the use of the NV- center as a single photon source. Detailed knowledge of the excited state properties is of critical importance to exploit the full potential of the NV- center.