Although there is no cure for the condition, early intervention can help people live independently for longer.
Campaigners welcomed the plans but warned the strategy's success would depend on adequate funding.
Ministers are confident that there is enough investment in the strategy - £150 million for the first two years - and say the new clinics will ultimately save the NHS money.
Dementia charities say the £1 billion this strategy is expected to save should be spent on finding a cure as well as improving the lives of those living with the condition.
Announcing the strategy Alan Johnson said: "I know that for many people, diagnosis can be difficult, care can be patchy and without adequate support, families can be under huge stress. All that must change."
Care Services Minister Phil Hope said early diagnosis was key to improving the live of people with dementia, and their families.
He said: "It takes on average three years after the disease begins for people to be diagnosed, partly because of the stigma and also a lot of GPs are not trained to spot the early signs.
This is a momentous opportunity to avert a dementia crisis that could overwhelm the NHS and social care
Doctors will get extra training to recognise the early signs of dementia.
And every hospital and care home should have a senior clinician with special responsibility for dementia care to ensure that the needs of people with dementia are addressed.
Dementia advisors, who will act as a guides for patients and their families, will be piloted in the first year of the strategy.
A new national publicity campaign will be launched to reduce anxiety and promote understanding of dementia.
Schools may be asked to include dementia in their lessons and employers could be asked to look out for dementia warning signs in their employees, under the strategy.
Neil Hunt, chief executive of the Alzheimer's Society, welcomed the strategy saying: "One million people will develop dementia in the next 10 years. This is a momentous opportunity to avert a dementia crisis that could overwhelm the NHS and social care.
"There is so much to do. Only a third of people with dementia get a formal diagnosis, denying them vital support. It is essential the strong leadership from the Department of Health continues so that these plans become a reality."
Prof Roy Jones, geriatrician and director of the Research Institute for the Care of Older People in Bath, said: "I am concerned about having a memory clinic in every town.
"I think what we need is a memory assessment service in every major town linked to specialist centres like ours, because diagnosis for something like Alzheimer's isn't the easiest. It is not just doing a simple test and saying you have or haven't got it.
"All of these things cost money and that is the real issue. Is the money going to come in with the strategy to support what we need to see?"
Rebecca Wood, chief executive of the Alzheimer's Research Trust, said the plan was "excellent news" but would not in itself solve Britain's dementia crisis.
"This £150 million investment in dementia care over two years is substantial and welcome. We are concerned that the strategy may not receive such support over the full five years of its implementation. Given the £17 billion annual cost of dementia in the UK, the government cannot afford to get this wrong.
"It is worrying that so little has been done to end the under-funding of dementia research," she said.
Author Terry Pratchett talks about the dementia strategy
"Within a generation, dementia will affect 1.5 million people in the UK, costing our economy £50 billion each year; yet dementia research still receives eight times less government support than cancer research.
"We need a commitment to a major increase in research funding if we are to defeat dementia once and for all."
Greg Mulholland, Liberal Democrat Spokesperson for Older People, called the strategy a missed opportunity.
"No increase in research funding means we are, and will remain, no closer to understanding dementia, and addressing the devastating impact that it has on the thousands of people and their families."
Campaigners are critical that the government's strategy fails to highlight the reported overuse of antipsychotic drugs for dementia patients.
The Alzheimer's Research Trust said there was good evidence that the drugs were being used as a "chemical cosh", and urged the government to act on this.
But ministers say the government's review on antipsychotic drugs are due to be published in the spring. The strategy does say there will be wider provision of older people's community mental health teams to asses patients in care homes and to help minimise the use of antipsychotic medication.
Wales is in the process of developing a national dementia plan. Scotland already has national targets for dementia diagnosis and care.
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