Transition metal oxides are promising candidates for the next generation of spintronic devices due to their fascinating properties that can be effectively engineered by strain, defects, and microstructure. An excellent example can be found in ferroelastic LaCoO3with paramagnetism in bulk. In contrast, unexpected ferromagnetism is observed in tensile-strained LaCoO3films, however, its origin remains controversial. Here we simultaneously reveal the formation of ordered oxygen vacancies and previously unreported long-range suppression of CoO6octahedral rotations throughout LaCoO3films. Supported by density functional theory calculations, we find that the strong modification of Co 3d-O 2phybridization associated with the increase of both Co-O-Co bond angle and Co-O bond length weakens the crystal-field splitting and facilitates an ordered high-spin state of Co ions, inducing an emergent ferromagnetic-insulating state. Our work provides unique insights into underlying mechanisms driving the ferromagnetic-insulating state in tensile-strained ferroelastic LaCoO3films while suggesting potential applications toward low-power spintronic devices.