Using a novel approach to calculate optical properties of strongly correlated systems, we address the old question of the physical origin of the alpha--> gamma transition in Ce. We find that the Kondo collapse model, involving both the f and the spd electrons, describes the optical data better than a Mott transition picture involving the f electrons only. Our results compare well with existing experiments on thin films. We predict the full temperature dependence of the optical spectra and find the development of a hybridization pseudogap in the vicinity of the alpha--> gamma phase transition.