The inspectorate's Bold Beginnings report into the reception class experience of four- and five-year-olds also found that those from disadvantaged backgrounds are the least likely to progress. Around half of this age group were found to be failing to achieve expected levels of social, emotional and physical, and communication development, as well as expected standards in literacy and maths.
During 2016/17 the quality of early years provision was found to be "inadequate' in 84 schools and 331 were rated "requires improvement".
A key problem was found to be a failure to offer a "sufficiently challenging" curriculum for four- and five-year-olds that helps them swiftly develop in reading, writing and maths. Too many head teachers were also found to lack ambition in what this age group could achieve.
"For too many children, the reception year is far from successful," the report states.
"It is a false start and may predispose them to years of catching up rather than forging ahead. In 2016, around one third of children did not have the essential knowledge and understanding they needed to reach a good level of development by the age of five.
The report adds that outcomes for disadvantaged children are "far worse", with just over half having the knowledge and understanding necessary for a positive start at school.
The report looked in depth at the experience of children in 41 primary school reception classes that have been rated good and outstanding to see what lessons can be learned.
Ofsted said the best schools put reading at the heart of lessons, with storytelling sessions seen as the "highlight of the day".
In these classes children are encouraged to learn poems and rhymes by heart, they learn maths through practical activities and play focuses on developing children's personal, social and emotional development.
"Reading should be at the heart of the reception year. It is important that in the reception classroom young children hear new vocabulary and have the opportunity to practise new words and phrases," said Ofsted chief inspector Amanda Spielman.
"The best schools know how to design their curriculum so that children's learning and development sets them up well for the rest of their schooling.
"Reception should not just be a repeat of what children learned in their nursery or pre-school, or with their childminder. They deserve better than facing years of catching up."
Head teachers interviewed for the report were critical of the Early Years Foundation Stage Profile (EYFSP), which tests children at the end of their reception year, describing it as "an unnecessary burden on teachers".
They also told Ofsted that some newly qualified teachers are not well prepared for teaching reading, writing and maths in reception classes.
Ofsted is calling on the Department for Education to review the EYFSP to make it more streamlined to reduce teachers' workload.
Other recommendations include ensuring all trainee primary school teachers are given specific training in taking reception classes and have a greater understanding of phonics.
National Day Nurseries Association chief executive Purnima Tanuku said she is concerned that the report does not urge primary schools to work more closely with early years settings in helping children develop.
"We are concerned that so many children are failing to meet their expected level of development - but also that Ofsted does not recommend a closer working relationship between schools and early years settings," she said.
"Head teachers agree that children's achievements up to the age of five can determine their life chances - and yet this report barely mentions pre-schooling years."
Meanwhile, Neil Leitch, chief executive of the Pre-School Learning Alliance, said the report's focus on improving literacy and maths is too narrow.
"While both skills are of course vital for early development, research has shown that a focus on them over and above broader skills such as physical development, and personal, social and emotional development, is likely to be detrimental to children's early learning experiences," he said.
"As such, we urge both the government and Ofsted to work with early years experts to ensure that the reception year is focused on all the skills that children will need during their primary years, and throughout their longer educational journeys."