A draft report into the death of a black man at a secure unit says psychiatric patients from ethnic minorities face institutional racism.
David Bennett was restrained after he injured a nurse
David "Rocky" Bennett died at a clinic in Norfolk in 1998 after being restrained face down by nursing staff.
Campaigners say the report, obtained by the BBC, is the mental health equivalent of the Macpherson Report, which looked at police racism.
The Department of Health said there was no place for racism in the NHS.
The inquiry team is calling on the government to appoint a black mental health tsar to oversee fairness and improvements in the system.
Mr Bennett, 38, of Peterborough, Cambridgeshire, was restrained after he severely injured a nurse at the Norvic Clinic in Norwich following an argument with another patient who had racially abused him.
Nursing staff held him face down for almost 25 minutes lying across his legs and upper torso.
The report concludes this was substantially longer than was safe and makes recommendations for better training.
The inquiry panel formed the "strong impression" that on the night he died Mr Bennett was treated as a "lesser being".
Mr Bennett's sister, Dr Joanna Bennett, a mental health expert in her own right, said her brother had become frustrated with the way he was treated at Norvic Clinic.
She told Radio 4's Today programme: "He was racially abused on several occasions by other patients and, in fact, assaulted by another patient prior to the night when he actually died.
"He was always seen to be the problem and, certainly on the night he died, he was definitely the one who was punished even though he was the one who was racially abused and assaulted."
An inquest recorded a verdict of accidental death aggravated by neglect but Mr Bennett's family were unhappy with the coroner's findings.
They began a campaign to further investigate his death which resulted in the government launching the independent inquiry, headed by former High Court judge Sir John Blofeld.
Sir John's draft report concludes that ethnic minorities are not getting the service to which they are entitled.
It calls this "a disgrace" and says the responsibility to improve "lies squarely" on the DoH.
Inquiry panel member Professor Sashi Sashidharan believes that without "dramatic" changes there will be more unnecessary deaths of psychiatric patients from ethnic minorities.
He told Today: "As we speak there are hundreds, if not thousands, of black people who are detained in psychiatric facilities in this country whose needs aren't being addressed and many of whom are being treated brutally and punitively."
The Royal College of Psychiatrists, which has undertaken a review to eliminate institutional racism from "within its own structures and in mental health services", welcomed the inquiry's findings.
Its president, Dr Mike Shooter, said: "In particular, we welcome the inquiry's recommendation to appoint a national director of mental health and ethnicity in the NHS and would wish to work closely with such a director in the future."
Mental health charity SANE also welcomed the appointment of a black mental health tsar and called for
an "intensive programme of training for mental health nurses in the management of disturbed behaviour".
In a statement, the DoH said it had long recognised that NHS Mental Health Services did not address the needs of black and ethnic minority patients.
It said it was holding a consultation to improve services for users and relatives from those communities.
The Norvic Clinic refused to comment until the report is officially published next week.