  We calculate the electronic structure of Sr2RuO4, treating correlations in
the framework of dynamical mean-field theory. The approach successfully
reproduces several experimental results and explains the key properties of this
material: the anisotropic mass renormalization of quasiparticles and the
crossover into an incoherent regime at a low temperature. While the orbital
differentiation originates from the proximity of the van Hove singularity,
strong correlations are caused by the Hund's coupling. The generality of this
mechanism for other correlated materials is pointed out.
