Morgan will join fellow England international Kevin Pietersen in Bangalore
Eoin Morgan was the only England player to be bought at the auction for the 2010 Indian Premier League.
The 23-year-old batsman will join the Royal Challengers Bangalore after being sold for a fee of £134,000.
Only 11 out of the 66 overseas players attracted successful bids, with England's Graeme Swann and all 11 Pakistan players left unsold.
West Indies all-rounder Kieron Pollard and New Zealand paceman Shane Bond were the costliest players at the auction.
While Morgan was the only England player to be sold at the auction, there are plenty of his compatriots already contracted to IPL teams.
Kevin Pietersen will be with Morgan in Bangalore, Paul Collingwood plays for the Delhi Daredevils, Dimitri Mascarenhas is with the Rajasthan Royals, Ravi Bopara plays for Kings XI Punjab, Graham Napier plays for Mumbai while Owais Shah was traded to the Kolkata Knight Riders.
Andrew Flintoff is with the Chennai Super Kings but will miss the second year of his contract because of injury.
Mumbai, Chennai, Bangalore and Kolkata all matched the £458,000 maximum offer for the 22-year-old Pollard.
The four teams were then given an extra five minutes to decide how much extra they wanted to commit and had to indicate their final price in a sealed envelope - with Mumbai Indians coming out on top.
Bond also made the maximum fee, with Kolkata Knight Riders winning the bidding.
The silent bid amount exceeding the base price is not disclosed. The excess money - more than each team's limit of £458,000 spending - goes to IPL and not the player.
Bond has returned to mainstream cricket after two years with the unauthorised Indian Cricket League.
"From what we understood, he isn't going to be playing Test matches any more," said Knight Riders co-owner Jay Mehta.
"He has a few injuries, but from what we have heard from his coach, he is in pretty good shape right now.
"We wanted a fast bowler and we wanted someone with experience and he provides us with that experience."
West Indies fast bowler Kemar Roach was signed by Deccan for £439,000 while South Africa left-armer Wayne Parnell went to Delhi for £372,000.
Pollard will play for the Mumbai Indians in the IPL
England spinner Swann was one of three players to have attracted the highest base price of £153,000 for the auction.
But, together with fellow Englishmen Tim Bresnan, Robert Key, Anthony McGrath, Monty Panesar, Mark Ramprakash and Jonathan Trott, he was not sold.
It was a major surprise that none of the Pakistan players were snapped up, but fears over visa problems may be to blame.
The likes of Shahid Afridi, Umar Gul and Abdul Razzaq were part of the Pakistan team that won the ICC World Twenty20 last June.
Australian wicketkeeper Brad Haddin and seam bowler Doug Bollinger also went unsold.
IPL III starts on 12 March and ends on 25 April. England play two Tests in Bangladesh from 12-24 March.
Only four non-Indians are permitted to feature in each playing XI, with eight in each squad.
Australian Adam Gilchrist steered Deccan Chargers to victory over Royal Challengers Bangalore by six runs in last year's IPL final in Johannesburg, staged in South Africa because of security concerns.
But this year's tournament returns to India, where it was won in its inaugural year by the unfancied Rajasthan Royals.
All the players bought from the auction in Mumbai will be given a one-year contract valid until 31 December which will also cover a Champions League Twenty20 tournament later this year.
Full list of IPL auctions:
Kieron Pollard [West Indies] - Mumbai Indians (£458,000 tie-break)
Shane Bond [New Zealand] - Kolkata Knight Riders (£458,000 tie-break)
Kemar Roach [West Indies] - Deccan Chargers (£439,000)
Wayne Parnell [South Africa] - Delhi Daredevils (£372,000)
Mohammad Kaif [India] - Kings XI Punjab (£153,000)
Eoin Morgan [England] - Royal Challengers Bangalore (£134,000)
Damien Martyn [Australia] - Rajasthan Royals (£61,000)
Justin Kemp [South Africa] - Chennai Super Kings (£61,000)
Adam Voges [Australia] - Rajasthan Royals (£30,000)
Thissara Perera [Sri Lanka] - Chennai Super Kings (£30,000)
Yusuf Abdulla [South Africa] - Kings XI Punjab (£30,000)