The most money paid for a musical instrument at any auction is for a violin, known as the 'Hammer', made in 1707 by Antonio Stradivari in Cremona, Italy, and which sold for $3.5 million (then £1.9 million) to an anonymous buyer, at Christie's, New York, USA on 15 May 2006. The violin is one of 620 made by Stradivari and thought to still exist.
NB: Report from The Times online (14 February 2008) said that Maxim Viktorov (Russia) bought an extremely rare (1740s) violin by Giuseppe Guarneri, known as Giuseppe del Gesù, an 18th-century master, during a private sale. Sotheby's negotiated the deal, but declined to reveal the final price, although confirmed that the figure was be “well in excess” of the world auction record of $3.54 million, which was achieved by a Stradivarius sold at Christie’s New York in 2006.
Comments below may relate to previous holders of this record.