The king commissioned the piano for the palace from renowned maker Thomas Tomkison in about 1821.
The instrument displays the flamboyant taste Tomkison shared with the king.
It was bought by Brighton and Hove City Council with funding from Arts Council England and the Victoria and Albert Museum,
The piano is thought to have been removed from the Pavilion by Queen Victoria after she ascended the throne in 1837.
However, its whereabouts for many years are unknown and it is thought to have held in private collections.
A Brighton Pavilion spokeswoman described the instrument as "an elegant rosewood grand, extravagantly decorated, inlaid with brass, gilt mouldings and gilt turnbuckles, with elegantly carved legs".
Councillor Alan Robins said: "King George's piano has long been on a wish list of desirable assets for the Royal Pavilion and so we're thrilled to have brought it back to its rightful home.
"The piano is playable but as it's been dormant for 20 years will need some restoration. It would be amazing to be able to hear music of the period played on it."

"Despite so many false statements and lies, total and complete vindication...and WOW, Comey is a leaker!" he tweeted early on Friday.
Mr Comey told Congress under oath he believed he was fired to influence his investigation into the Trump campaign.
The ex-FBI boss led one of several Russia inquiries before he was sacked.
It is not clear what falsehoods Mr Trump is referring to but his lawyer has rejected as untrue several key parts of Mr Comey's testimony.
Mr Comey, who testified before the Senate Intelligence Committee on Thursday, said the president pressured him to drop an investigation into former national security adviser Michael Flynn.
Mr Flynn was himself forced out after misleading the vice-president about conversations with Russia's ambassador before Mr Trump took office.
Mr Comey also said the president defamed him and the FBI by claiming the agency was "poorly led", which Mr Comey called "lies, plain and simple".
He said he began writing memos after his meetings with Mr Trump because he was "honestly worried he might lie".
He leaked details of his memos after an account of it had already been published in the press.
As a result of that episode, a special counsel was appointed to lead an independent investigation into the Trump campaign's potential ties to the Kremlin.
But there is no known evidence of collusion between Russia and the US, and President Donald Trump has dismissed the story as "fake news".
After the hearing, the president's personal lawyer issued a statement rejecting many of Mr Comey's allegations.
Marc Kasowitz said on Thursday that the president never sought to impede the investigation into possible Russian interference in the US election and that Mr Comey's leaks should be investigated.
He also said the testimony confirmed that Mr Trump was not under investigation as part of any probe into Russian political meddling.
Hours later, Mr Trump ignored reporters when asked about whether Mr Comey was telling the truth.

Emergency services were called at 11:44 BST to reports a boat carrying a father, his teenage daughter and her two friends had capsized.
Torbay inshore and all-weather lifeboats were called and the four were taken to Torbay hospital.
The coastguard search and rescue teams from Berry Head and Torbay and the coastguard helicopter were also called.
Specialist divers are at the scene and are expected to remove the capsized boat from near the entrance to the harbour.
Mark Criddle, coxswain of Torbay's RNLI lifeboat, said the vessel was launched at 11:51 BST to reports of an overturned boat just outside Brixham harbour with four people in the water.
'We arrived on scene to find a 16ft speedboat upside down with a girl trapped in it," he said.
"We located the girl and brought her onboard the lifeboat where she was immediately given first aid by a doctor and paramedic who were members of the lifeboat crew."
He said the three other people who had been on the speedboat had been rescued by other craft in the area, including two jet skiers and a yacht.
'We took the girl back to shore where she was handed into the care of paramedics who took her to hospital. The three other people who had been aboard the overturned speedboat were also taken to hospital after being treated at the lifeboat station."
King George IV's only known surviving grand piano has been returned to Brighton's Royal Pavilion after being bought at auction for Â£62,000.
[NEXT_CONCEPT]
US President Donald Trump has broken his Twitter silence after James Comey's explosive testimony to appear to accuse the former FBI chief of perjury.
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One person died and three others were taken to hospital after a boat capsized in Brixham harbour in south Devon.