Under 18s looked after by the state are more than five times as likely to end up in trouble with the law than those who are not, the Prison Reform Trust said.
Almost two thirds of those separated from their families or left parent-less at a young age were abused or neglected prior to being taken into care, the charity added.
Young people who have been in care and had experience of the justice system will form a consultation group and give evidence to the review team, led by Privy Councillor and Crossbench peer Lord Laming.
A former social worker, Lord Laming lamented the high crime rate and said something needed to be done to tackle a problem contributing to "wasted later lives".
A youth offender in Germany pictured with his face blurred
He said: "It is a huge step for the state to assume the parenting of a child or young person. With that comes the responsibility to provide stability, security and hope for the future.
"Fewer than 1% of children and young people are committed to the care of local authorities, yet a third of boys and 61% of girls in custody are, or have been in care.
"We cannot stand by and allow wasted opportunities to result in wasted later lives.
"We are determined to ensure this review makes practical recommendations to enable key services to work together to help children in care transform their life chances and stay out of trouble."
Juliet Lyon, director of the Prison Reform Trust, said: "There is a depressing route from care to custody which can, and must, be stopped. We need to listen to children in care about how they got drawn into trouble and hear their views on ways to get out of it."
A review team is expected to report its findings, focusing on England and Wales, early in 2016.
The news comes as Justice Secretary Michael Gove prepares for his first major speech in the role, where he's expected to blast the country's "failing" justice system for benefiting wealthy individuals and punishing the poor.