The medal was purchased by a prominent philanthropic Australian businessman who said he wished to remain anonymous.
But it was later revealed that the mystery bidder was the owner of the Seven Network, Kerry Stokes.
Lot 1078 included seven other medals with a combined value of less than $100,000.
The VC was awarded posthumously to New Zealand-born Australian soldier Captain Alfred Shout and was put up for auction by his grandson, 67-year-old Graham Thomas.
The A$1 million price tag breaks the record of A$595,000 set in 2005 for a medal won by captain Thomas Hardy at Lord Nelson’s victory at Trafalgar in 1805.
The highest price paid previously for a VC was A$575,000 in 2004 for a medal awarded to Sergeant Norman C Jackson, a British Royal Air Force pilot during World War II in 1944.
Auctioneer Tim Goodman, of Bonhams and Goodman auction house, told the crowd there were plans for the medal to soon be on public display.
“I can confirm the buyer is a prominent Australian businessman who is going to work with the RSL to make sure the medals go on display at the Australian War Memorial in Canberra,” Mr Goodman said before Mr Stokes’ identity had been revealed.
The war memorial holds the other eight VCs awarded to Australians for service at Gallipoli. Capt Shout was mortally wounded at Lone Pine when the last of three grenades he ignited blew up in his face.
He was the most highly decorated Australian soldier to serve during the Battle of Gallipoli in 1915, being awarded the Military Cross for his actions during the botched landing at Anzac Cove in April.
Capt Shout was awarded the Victoria Cross for his actions during the Battle of Lone Pine in August that year.
Mr Thomas said his grandfather would have approved of the sale. “He’d probably say ‘you did a bloody good job’,” said Mr Thomas, who planned to celebrate over a beer.
Mr Thomas said his decision to sell the medals, passed to him by his mother, had met with very little criticism.
All up Mr Stokes paid A$1,214,500, including commission and other charges.