Children in care are six times more likely to be cautioned or convicted of a crime than other young people, new research has found.
A review by Lord Laming for the Prison Reform Trust also found that half the children serving time in youth custody came from foster or residential care.
The Government is being urged to launch a reform programme to help improve to improve the lives of such children.
The report is the result of a year-long inquiry that received data from 60% of local authorities and young people who have been in care.
It found that around half of the 1,000 children currently in custody in England and Wales have experience of the care system, despite fewer than 1% of all children in England, and 2% of those in Wales, being in care.
It costs over £200,000 each year to keep a young person in a secure children's home and the yearly cost of a place in a young offender institution is about £60,000.
Cross-bench peer Lord Laming told The Times that police were sometimes involved in situations that would normally be dealt with by parents.
He said the police had been called when a child "stole" food from the kitchen of his care home and when a teenager trashed his room.
"Most families deal with this sort of challenging behaviour within the family," he said.
"Once the police are called, it becomes theft or criminal damage and it goes on the child's record.
"We must stop having children in care sucked into the criminal justice system for trivial reasons."
The report recommends that social services and criminal justice agencies work together better and the police improve their practice to prosecution of children and young people in care.
Juliet Lyon, director of the Prison Reform Trust, said: "By listening to children in care about how they have got drawn into trouble, this review provides practical and workable solutions to help break the depressing route from chaos to care to custody."