Nafi’ reported: A man sneezed next to Ibn Umar and he said, “All praise is due to Allah and peace be upon the Messenger of Allah.” Ibn Umar said, “I also said all praise is due to Allah and peace be upon the Messenger of Allah, but this is not what the Messenger of Allah taught us, peace and blessings be upon him. Rather, the Prophet taught us to say: All praise is due to Allah in every circumstance.”

Source: Sunan At-Tirmidhi 2378

Grade: Sahih (authentic) according to Ibn Muflih

عَنْ نَافِعٍ أَنَّ رَجُلًا عَطَسَ إِلَى جَنْبِ ابْنِ عُمَرَ فَقَالَ الْحَمْدُ لِلَّهِ وَالسَّلَامُ عَلَى رَسُولِ اللَّهِ قَالَ ابْنُ عُمَرَ وَأَنَا أَقُولُ الْحَمْدُ لِلَّهِ وَالسَّلَامُ عَلَى رَسُولِ اللَّهِ وَلَيْسَ هَكَذَا عَلَّمَنَا رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ عَلَّمَنَا أَنْ نَقُولَ الْحَمْدُ لِلَّهِ عَلَى كُلِّ حَالٍ

2378 سنن الترمذي كِتَاب الْأَدَبِ بَاب مَا يَقُولُ الْعَاطِسُ إِذَا عَطَسَ

المحدث ابن مفلح خلاصة حكم المحدث إسناده جيد

And the reason why we say so is because: 
When we sneeze, our heart stops beating for a second. But even if after we sneeze, we are still alive and well, so we should thank Allah that we are still alive and praise Him because the mechanisms in our body are so complex that we are still alive even if our heart stops beating for a second