The Omega stopwatch was used by Taylor during the decider between the Netherlands and West Germany as he awarded the first-ever penalty in a World Cup final.
Mr Taylor, who was born and raised in Wolverhampton and later lived in Shifnal, gave two penalties in the first 30 minutes of the match including one after two minutes which led to Johan Neeskens scoring the fastest-ever final goal.
Now the timepiece has been auctioned off for £3,300 by Fellows Auctioneers in Birmingham, with the full price with fees costing £4,210.80.
Steven Yambo, senior watch specialist at Fellows Auctioneers, said: “It is a delight to auction such a precious and significant piece of footballing history.
"Jack Taylor was one of the most esteemed English referees who was involved in some huge football matches, although this was certainly the biggest.
"We received multiple bids from three different bidders on this lot and I am glad that the stopwatch was sought after. It is in a very good, working condition for its age and the winning bidder has acquired an exquisite and historic item.”
The stopwatch contained engravings including the official 1974 World Cup logo and Mr Taylor's initial. It was entered into auction by the referee's family, the auction firm said.
The 1974 World Cup final took place in Munich with West Germany emerging as winners in a 2-1 victory which saw Johan Cruyff, Gerd Müller, and Franz Beckenbauer all play.
Mr Taylor later recalled how Beckenbauer approached him and said "Taylor, you’re an Englishman" after he gave the penalty to the Netherlands before Beckenbauer or any of his German teammates had touched the ball.
The referee can be seen using the stopwatch in various videos and images of the match. He is one of only three Englishmen to have refereed a World Cup final.
It is not known why Taylor was able to keep the stopwatch, although it is likely that he was gifted it by FIFA. The watch was given to his daughter Jayne Willis more than 40 years ago and it has remained, untouched, in a cabinet since the 1980s.
The watch, which still works, came in its original Omega box – also containing the name of the referee – and measured 54mm in diameter, with a mechanical, hand-wound movement.
Mr Taylor took charge of more than 1,000 competitive matches over a 33-year career, including the 1966 FA Cup final and the 1971 European Cup final. In 2013 he became the first referee to be inducted into the English Football Hall of Fame, after previously being inducted into the FIFA Hall of Fame in 1999.
He later became the commercial director for Wolves in 1979 but was sacked in August 1982 when a new consortium took charge of the club. He died at his Shropshire home at Lower Upton, Shifnal, in 2012 aged 82.