The 1964 Fender Stratocaster sold to an unidentified bidder for $965,000 Friday in New York, a Christie's spokesperson said.
The musician -- who was 24 at the time -- played the instrument in 1965 at the Newport Folk Festival, the first time he was ever backed by an electric band, a statement from the auction house said.
"A tremendous amount of international interest was generated at the time of the sale's announcement, and today's result justifies the mythic status of this guitar in the annals of music history," said Tom Lecky, Christie's specialist and the sale's auctioneer.
Dylan left the guitar behind on a private plane months after the folk festival, and it had been in the possession of the New Jersey pilot's family ever since, the BBC reported. The pilot's daughter had the guitar authenticated on the PBS show, "History Detectives."
Lawyers for Dylan said in July 2012 he still had the guitar he played at Newport, and several other Stratocasters he owned were "stolen from him around that time."
"History Detectives" stood by its claim, saying an expert authenticated the guitar by matching details of the instrument with details in a photograph of Dylan's 1965 performance.
Christie's had estimated the guitar would sell for between $300,000 and $600,000 at auction, CNN said.