Yes, Django 1.1 is well supported in the Google App Engine. You will need to make your own installation locally to include it in the GAE SDK, but it already exists for you on the App Engine production servers, see Documents - just do
import os
os.environ['DJANGO_SETTINGS_MODULE'] = 'settings'
from google.appengine.dist import use_library
use_library('django', '1.1')
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