It also claims that sexual abuse and neglect are common within the indigenous community.
A Queensland Parliamentary committee investigated problems on Palm Island in the wake of riots in November 2004.
The riots broke out following the death in custody of Aboriginal man, Mulrunji.
The committee has made 65 recommendations including the establishment of a permanent police force on the settlement.
Queensland Premier Peter Beattie said in March the committee would develop a blueprint for tackling the problems.
The committee found many of the problems stemmed from the “action and inaction” of successive Palm Island Councils.
“[The] Committee was advised that neglect of young people is the most prevalent form of abuse and involves for example, young people not being involved with basic clothing, food and nutrition, housing and medical attention,” the report said.
“At the same time, law and order is a problem with young people on Palm Island and the community experiences a significant degree of youth vandalism and crime. Alcohol and drug use among young people is common.”
Palm Island has been plagued by high unemployment which is considered a significant contributor to alcohol and drug abuse.
There is also a lack of training opportunities, limited exposure to “positive role models” and truancy among schoolchildren.
A career expo, more traineeships, sporting activities and an alcohol management plan were among the recommendations made in the report.
“The Committee was told that the island has already lost a generation of its people and that this should not allow to occur again… “ the report said.