There are "serious and deeply ingrained problems" with child and adolescent mental health services, officials warn.
The Health Select Committee says the whole system - from prevention and early intervention through to inpatient services - has issues.
While demand for care is rising, in many parts of the country funding is being frozen or cut.
The government said it had launched a taskforce to drive up standards, and was investing money in mental health.
The Health Select Committee, which received the most written submissions for any inquiry it has held this Parliament, was particularly concerned about children and young people being taken to police cells rather than hospital.
Police can detain people under the Mental Health Act if there is no "safe space" in hospitals available.
A recent analysis by the Care Quality Commission found people were being turned away because of full wards, staff shortages or violent behaviour.
Often when beds are found, they may be in distant parts of the country.
The committee also heard how young people with mental health problems and their parents had to battle to access appropriate services.
In some areas, it has been reported that services will not kick in unless the young person has attempted suicide.
Those planning and running services have been operating in a "fog" without a clear national vision or adequate funding, says the committee.
Sarah Brennan, chief executive of Young Minds, said: "We have been told countless times of the intense frustration of mental health professionals as they attempt to do their best for children, young people and their families who are suffering on a daily basis."
Dr Hilary Cass, president of the Royal College of Paediatrics and Child Health, accused policy makers of dragging their heels.
Care and Support Minister Norman Lamb said: "I am determined to make sure young people get the mental health care they need.
"We've invested £7m in new beds, I've launched a taskforce to improve services, and we are introducing a new waiting time standard to make sure young people with psychosis get prompt treatment."
Estimates suggest one in 10 children aged between five and 16 has a mental disorder, such as anxiety, depression or a conduct/behavioural disorder.