The long-awaited review, led by former children's minister Edward Timpson, makes 30 recommendations to improve arrangements for children and young people who have been excluded from school.
It recommends that the government develops new accountability measures to stop the practice of "off-rolling" - where disruptive or low-attaining pupils are removed from the school roll without being formally excluded.
This could include developing new incentives to prevent schools from excluding pupils and ensuring the attainment of excluded pupils is included in exam league tables.
The Department for Education has agreed to all recommendations in principle and will launch a consultation on their plans later this year.
This will include how to make schools accountable in the most effective and fair way, so they can fulfil their responsibilities for permanently excluded children. This may include through reform to commissioning and funding arrangements for alternative provision.
In addition, the government confirmed it will rewrite guidance on managing behaviour and the circumstances when exclusions should be used. This will extend to the use of isolation units and support for children with special educational needs and disabilities (SEND).
Education Secretary Damian Hinds said: "Exclusion should not be considered the end point for any child; it has to be the start of something new and positive - with alternative provision offering smaller class sizes and tailored support.
"We also need to support those most at risk of exclusion, taking action before exclusion happens. Too many children can fall through the cracks, so I want schools to be accountable for the pupils they exclude, alongside tackling the practice of illegal off-rolling."
DfE figures show that in primary, secondary and special schools the number of permanent exclusions increased 15 per cent between 2015/16 and 2016/17.
While 85 per cent of all mainstream schools did not permanently exclude any children in 2016/17, 0.2 per cent permanently excluded more than 10 pupils. Of those pupils permanently excluded, 78 per cent are children with SEND, classified as "in need" or eligible for free school meals.
The review also highlights a lack of support for children who have been excluded - four out of five parents of children who were permanently excluded said the support they received in finding an alternative school place for their child was ‘poor' or ‘very poor', while three quarters of parents whose child had been temporarily excluded felt the support they received in preparing for their child's return to school was "poor" or "very poor".
The review also calls for clearer national guidance on exclusion to be written with and for young people, to be provided by central government, schools and local authorities working together.
"Throughout this review I have found too much variation in the use of exclusions and too many missed opportunities for children to remain in the education that best suits their needs," said Timpson.
"Although I did see examples of schools using exclusions appropriately and effectively, there is clear room for improvement and everyone - from teachers and parents, the Department for Education and Ofsted, to local authorities and children's services - has their part to play.
"Most importantly there must be safeguards in place for when things go wrong so that we can keep children on the path towards the successful future they all deserve."
Anne Longfield, children's commissioner for England, welcomed the report, and backed the call to hold schools accountable for the exam results of pupils they exclude "in order to emphasise our continuing social responsibility for these children, instead of shunting them off into the sidelines".
She said: "The majority of schools do excellent work supporting pupils in this very tough financial climate. However, they cannot do this alone - they need help from local services and the whole system of support for vulnerable children needs better funding, and quickly. Ministers need to recognise this and act in the forthcoming Spending Review."
Rachel Dickinson, president of the Association of Directors of Children's Services, welcomed the proposal to make schools more accountable but warned such measures alone "will not prevent pupils from getting to the point of exclusion".
"The report acknowledges schools need more support to understand and respond to the needs of individual children before they get to the point of exclusion, part of this is ensuring schools have enough funding and resources to support children who could, with the right support, stay within the mainstream system, rather than be squeezed out," she said.
"Local authorities must also be properly funded for our preventative duties enabling us to work with children and young people earlier, to address their needs before they reach crisis point."
But Kevin Courtney, joint general secretary of the National Education Union, said that the report does not acknowledge the "system-wide drivers" for exclusion and off-rolling.
"These are the high-stakes accountability system and the fragmentation of our school system into competing units chasing league table positions and high Ofsted scores, while accountability mechanisms such as local authorities have been undermined and stripped of their powers over thousands of academy schools," said Courtney.
"These are problems of the government's own making. It has created incentives for bad practice which, sadly, some schools have chosen to respond to."