We elucidate the mechanism of cold denaturation through constant-pressure simulations for a model of hydrophobic molecules in an explicit solvent. We find that the temperature dependence of the hydrophobic effect induces, facilitates, and is the driving force for cold denaturation. The physical mechanism underlying this phenomenon is identified as the destabilization of hydrophobic contact in favor of solvent-separated configurations, the same mechanism seen in pressure-induced denaturation. A phenomenological explanation proposed for the mechanism is suggested as being responsible for cold denaturation in real proteins.