It was sold to a British collector after a feverish 10-minute battle between telephone bidders at Titanic specialist auctioneers Henry Aldridge and Son in Devizes, southwest England.
The instrument carries an inscription from the 33-year-old's fiancee Maria Robinson to mark their engagement and was sold with the leather luggage case, initialled W.H.H, in which it was found.
For decades the violin was believed lost but it was found in the attic of a house in northwest England in 2006, prompting a debate about its authenticity, which experts only recently resolved.
"We're absolutely overjoyed," Christine Aldridge, a spokeswoman for the auction house, told AFP.
"It was sold to a UK collector who was bidding by telephone. The whole sale only took about 10 minutes."
She said the final price including premiums paid to the auction house was £1,050,030.
Hartley's band famously decided to continue performing as the Titanic sank, playing the hymn "Nearer, My God, to Thee" to comfort the panicked passengers as they sought places in the few lifeboats.
Hartley and his seven bandmates all died when the ship slipped beneath the icy North Atlantic on April 15, 1912, after hitting an iceberg.
Bidding for the violin started at just £50, with principal auctioneer Alan Aldridge joking that he was setting the price so low so that two of his friends could bid.
But within a few minutes it had passed the previous world record of £220,000 for a piece of Titanic memorabilia sold at auction, a 10-metre (33-foot) plan of the ship that went under the hammer in 2011.
There were gasps from the 200 people packed into the auction house as the price reached £350,000 and then a tense silence as the battle for the instrument narrowed to two telephone bidders.
It had a reserve price of £200,000 to £300,000.
'It epitomises bravery'
Andrew Aldridge, a valuer with the auctioneer, said he hoped the violin would stay in Britain and go on display.
"It symbolises love, with a young man strapping it to his body because it was an engagement present from his fiancee," he said.
"It also epitomises bravery. He knew there would be no lifeboats. It symbolises everything that's good about people, not just Wallace Hartley and his band, but all the men, women and children who lost their lives."
Hartley was given the maple, spruce and ebony violin by his fiancee in 1910.
She had a silver plaque fixed to the instrument engraved with the words: "For Wallace, on the occasion of our engagement. From Maria."
It is now thought that the instrument was inside a leather bag that was found strapped to his body 10 days after the sinking, and was then passed to Robinson.
Robinson never married and after her death in 1939, her sister donated the violin to her local Salvation Army band, where it passed to a music teacher and then the unnamed owner in whose house it was discovered in Lancashire, northwest England.
The instrument went on sale along with dozens of other pieces of memorabilia that included another violin, played by the actor who portrayed Hartley in the 1997 "Titanic" movie starring Leonardo DiCaprio and Kate Winslet.
Hartley's violin has already been on show at Titanic Branson and Titanic Pigeon Forge in the United States, the largest Titanic museums in the world, and later at Titanic Belfast, a tourist site in Northern Ireland.
The Titanic was built in Belfast and set sail from Southampton, southern England, for New York on April 10, 1912, before hitting an iceberg just days later.
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