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The six-bedroom, three-bathroom house was snapped up at an auction in the resort last Friday, by an Auckland buyer bidding by phone.
Three people were bidding past $1.1 million.
The sale comes just weeks after Arrowtown joined Kelvin Heights in the more-than-$1 million bracket for house sales.
Hoamz agent Nicole Bell, who listed the house, said there was huge demand from Queenstown residents and from people elsewhere, including cashed-up Kiwis returning to New Zealand from overseas.
''We just can't hang on to listings. They're selling so quickly.''
Built in 2006, the Sylvan St property sold at auction has six bedrooms and three bathrooms.
The 328sqm house is as big as some new sections coming on to the Queenstown market.
The property sprawls over 1634sqm.
Ms Bell compared it to high-end properties in adjoining Walnut Grove.
''We're not going to see many more properties selling at that price because there aren't that many six-bedroom properties in Lake Hayes Estate.''
The Sylvan St house's owner, Josh Brown, was reluctant to talk about the sale but confirmed he and the family were returning to Australia.
''Queenstown's been fantastic to us. It's been nine fantastic years of our life.''
Queenstown's median price last month was $796,000, up 44% on the year before.
But the hot market is not good news for everybody.
Happiness House co-ordinator Niki Mason said there was enormous anxiety among renters.
Some were spending more than half their income on rent and others worried about being evicted by landlords wanting to hike prices.
Many are living week-to-week.
Ms Mason: ''If there's a blip, like someone gets sick or they've got to fix up their car or there's a school event coming and they've got to find money for it, it's just not there.''