Fewer women should be jailed to prevent a "tragedy of wasted lives" for them and their children, Cherie Booth says.
Research suggests good family relations can reduce reoffending
The prime minister's wife, a top QC, was speaking at a conference in London organised by the Prison Reform Trust.
Over 17,700 children a year are parted from jailed mothers, says the trust, which wants urgent action to improve support and resettlement services.
Ms Booth said: "We do not help society, victims, offenders or their children by holding so many women in prison."
At the conference, at the British Library in St Pancras, north west London, the PM's wife called on courts to use the "range of sentencing options which enable women offenders to account for their crimes while avoiding the negative outcomes of imprisonment".
She urged: "We need to make sure that today's sons and daughters of prisoners don't end up tomorrow's offenders."
Despite evidence that maintaining good family ties can cut a prisoner's risk of re-offending by six times, half of all women in prison are held more than 50 miles from their homes, according to the trust.
A quarter are held more than 100 miles away.
Around two-thirds of women prisoners are estimated to have children - the average number of children being 2.1.
Trust director Juliet Lyon said: "Why do we persist in locking up young mothers, who have mostly not committed serious or violent offences, holding them miles away from home and damaging another generation of small, dependent children?
"Given the comparatively small numbers involved it would be possible to establish local support and supervision centres for women who offend."
It was hard to think of a worse place for young mothers and pregnant women than prison, she said.
Prisons should be punishments of last resort rather than treatment centres for vulnerable women, she added.
Joanne Sherlock, manager of the trust's Young Parents in Prison project, said children were the "forgotten victims of Britain's growing obsession with imprisonment".
"Wherever possible, courts should avoid custody and look to use community sentences which can allow offenders to put something back into society, while
also ensuring that families stay together," she said.
The Home Office insisted prison was already intended to deal with the most dangerous sexual, violent or serious offenders.
But, a spokesman added: "Offenders who continue to commit crime, despite being given every opportunity to get away from crime, should also expect to go to prison.
"In other cases, public protection can be achieved, and just as effectively, through tough community-based sentences."