Save the Children Australia has called for an urgent, nationwide overhaul to ensure better outcomes for children and the community.
While every state and territory has more to do to ensure children's rights were upheld, the report by the child's rights advocacy group found Western Australia, Queensland and the Northern Territory were the worst offenders.
In all three jurisdictions, the use of adult facilities to detain children and the use of excessive force and restraint were found to be significant breaches of children's rights.
The report has renewed the call for the age of criminal responsibility to be raised to at least 14 years, nationally.
Save the Children Australia also called for the introduction of national youth justice standards, independent oversight of youth detention facilities and legislated human rights protections.
The report recommended detention for children be used as a last resort and only where all other efforts of intervention were unsuccessful.
Save the Children Australia chief executive Matt Tinkler said the current system was setting children up to fail.
"The global evidence base shows that a rights-based approach to youth justice will lead to better outcomes for children, the community and governments," he said.
"The punitive and 'tough on crime' approaches of Australian governments are the opposite of this: they punish children for being victims of underlying causes like poverty and inequality; poor access to education and family support; and lead to children cycling back into the system again and again."
Nearly half of those in the youth justice system are Indigenous, despite making up just 5.8 per cent of the general population.
Culturally and linguistically diverse children make up 39 per cent of those in the system, while 40 per cent are from remote or regional areas.
More than 35 per cent come from the lowest socio-economic areas.
Mr Tinkler said adopting a child rights approach to youth justice would improve the way the system operates and provide better outcomes for children.
"This involves governments being prepared to invest in prevention and early intervention programs that are proven to reduce crime and set young people up with the skills and connections to reach their potential," he said.
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