The report, The Safe Use of New Technologies, argues that the children are safer online when they are given more responsibility in their use of the internet.
Looking at 35 schools, Ofsted found that five were outstanding in terms of e-safety, 16 were good, 13 satisfactory and one inadequate.
All five of the best schools used a "managed" system, which banned only a small number of websites and encouraged pupils to think more responsibly when online.
The worst schools in contrast had a blanket "lockdown" policy on a far greater range of websites.
While this initially kept children safe online, pupils were not learning how to use the internet safely and "were therefore more vulnerable overall" when using the internet outside schools, says the report.
Training for staff on e-safety was also a concern among a number of schools visited for the report. Training did "not always involve all the staff and was not provided systematically", says the report.
The government and councils are being called on to encourage schools to adopt a "managed" system of internet use and ensure all staff are trained in e-safety.
Schools are also being urged to work more closely with families to promote e-safety.
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