The abuse occurred after City’s Champions League semifinal victory over Paris Saint-Germain on Tuesday.
A spokesperson for Facebook, which owns Instagram, said on Wednesday the company had removed the comment and taken action against the account responsible.
“The racist abuse sent to Raheem Sterling is unacceptable and we do not want it on Instagram,” the statement said.
“No single thing will fix this challenge overnight but we’re committed to doing what we can to keep our community safe from abuse.”
Two City supporters were banned from football matches for five years in January last year for racially abusing Sterling.
The Football Association has called on the British government to introduce legislation to compel social media companies to do more to eradicate online abuse following the sport community’s four-day boycott last weekend.