The study, based on inspections of 185 community schools - those not attached to a particular faith - found that six out of 10 were not realising the subject's full potential and many children were leaving school with "scant subject knowledge and understanding".
It concluded that while there have been some improvements in the last decade, many RE lessons are still failing to help pupils "explore fundamental questions about human life, religion and belief".
The report, published on Sunday, criticised both Government and schools for failing to pay proper attention to the subject, with primary teachers finding it difficult to separate the subject from general spiritual, moral, social and cultural development, while many secondaries focused on philosophical, moral and social issues.
Many RE lessons were almost devoid of religion, with subjects including healthy living, charity work, visits to old people's homes, practising pantomimes and "literacy work on topics such as feelings" taking priority.
The inspectors found that in many cases Christian stories, particularly miracles, were reduced to little more than asking pupils to "reflect on their own experience without any opportunity to investigate the stories' significance within the religion itself".
Pupils' understanding was "not only superficial, but involved a distorted understanding of religious life".
Headteachers blamed the Government's new English Baccalaureate and short-course GCSEs ("half courses") as reasons for the changes they were making to the subject.