We report an order-disorder phase transition in the 2D semiconductor KAg3Se2, which is a dimensionally reduced derivative of 3D Ag2Se. At ∼695 K, the room temperature β-phase (CsAg3S2 structure type, monoclinic space group C2/ m) transforms to the high temperature α-phase (new structure type, hexagonal space group R3̅ m, a = 4.5638(5) Å, c = 25.4109(6) Å), as revealed by in situ temperature-dependent X-ray diffraction. Significant Ag+ ion disorder accompanies the phase transition, which resembles the low temperature (∼400 K) superionic transition in the 3D parent compound. Ultralow thermal conductivity of ∼0.4 W m-1 K-1 was measured in the "ordered" β-phase, suggesting anharmonic Ag motion efficiently impedes phonon transport even without extensive disordering. The optical and electronic properties of β-KAg3Se2 are modified as expected in the context of the dimensional reduction framework. UV-vis spectroscopy shows an optical band gap of ∼1 eV that is indirect in nature as confirmed by electronic structure calculations. Electronic transport measurements on β-KAg3Se2 yielded n-type behavior with a high electron mobility of ∼400 cm2 V-1 s-1 at 300 K due to a highly disperse conduction band. Our results thus imply that dimensional reduction may be used as a design strategy to frustrate order-disorder phenomena while retaining desirable electronic and thermal properties.