Care for people with schizophrenia and psychosis is falling "catastrophically short", a report has found.
There are "shameful" standards of care on some acute mental health wards, which can make patients worse rather than better.
The Schizophrenia Commission, established by the mental health charity Rethink Mental Illness, has called for a "radical" overhaul of the care system.
The report suggests that too much money is being spent on secure care - the most expensive form of care - and more should be invested in prevention and community support.
It also expresses concern that early intervention treatment teams are being cut in some areas.
Researchers claim that very few sufferers get the recommended levels of care.
Calling for more widespread use of community-based "recovery houses" and a redirection of funding from secure units into early intervention services.
Professor Sir Robin Murray, chair of the commission, said:"People [with psychosis] are being badly let down by the system in every area of their lives.
"People with psychosis need to be given the hope that it is perfectly possible to live a fulfilling life after diagnosis. We have no doubt that this is achievable."
Paul Jenkins, chief executive officer of the charity Rethink Mental Illness, added:
"It is a scandal that in 2012 people with schizophrenia are dying 15-20 years earlier than the general population and that only 7% are able to get a job. Too many people are falling through the gaps in the system and ending up in prison or homeless.
More money does need to be spent - but the funding that already exists could also be used much more effectively.
Schizophrenia affects more than 220,000 people in England and an estimated one in six people will experience some symptoms of psychosis at some stage in their lives, according to the report.
A Department of Health spokeswoman added: "This report highlights important areas for improvement and shows why we have put better treatment for those with mental health problems at the heart of the new Mandate for the NHS.
"This includes plans to hold the NHS to account for improving health and reducing premature deaths in people with serious mental illness.
"We're setting up pilot sites to improve access to psychological therapies for those who have a severe mental illness including schizophrenia.
"We are clear that people with mental health problems should be treated with the same high quality and dignified care as anyone else and we expect the NHS to make this happen."
Andrew McCulloch, chief executive at the Mental Health Foundation, said: "GPs and other health professionals must do more to offer routine health assessments to people with severe mental health problems and address identified needs.
"Some people with severe mental health problems experience a chaotic lifestyle, self-neglect, poor diet and high levels of smoking, all of which significantly increase risk of physical health problems, including cardiovascular disease.
"However, this level of mortality cannot be simply attributed to lifestyle - this could be seen as victim blaming. Social inequality clearly plays a major role.
"The commission's report points out that about 45% of people who receive a diagnosis of schizophrenia recover after one or more episodes.
"Rates of recovery will only improve when we refocus resources on to the early stages of illness, give people hope, and help them to self-manage their condition better, instead of spending all of our resources downstream."