Islanders are awaiting a hearing in the House of Lords this June
There are no physical, environmental or economic reasons why Chagossians cannot return to their islands in the Indian Ocean, a new settlement plan says.
The independent report says eco-tourism and fishing industries could provide jobs for them in the Chagos islands.
It estimates the cost of the plan to the British government is £25m.
More than 1,800 islanders were evicted in the 1960s when the UK made a deal allowing the US to build a military base on Diego Garcia, the main island.
Since then, apart from the military presence on Diego Garcia, the islands have remained largely uninhabited.
The exiled population has grown to an estimated 4,000 people, about 2,000 of whom live in Crawley, West Sussex.
The islands have a valuable coral eco-system and many rare animal and plant species. Previous feasibility studies have raised concerns about the impact of human inhabitation and the ability of islanders to sustain a living.
The new report written by John Howell, former director of the Overseas Development Institute, and backed by the Let Them Return campaign, claims to be the first independent assessment of whether the islanders should be allowed to return.
It says islanders could help the conservation effort and argues that there are enough opportunities to sustain decent living standards.
It proposes the establishment of conservation areas to protect rare birds, fish, turtles and coral, and says there would be careful management of the fishing industry.
Bashir Kahn, of the UK Chagos Support Association - the group which commissioned the report - says islanders are keen on the idea.
"We got our livelihood through fishing, farming and coconuts before we were evicted. The islands are perfect for ecotourism."
150 families to resettle in first five years
Eco-tourism and fishing exports main source of income
Fruit and vegetable production also to provide jobs
Training for islanders in conservation monitoring
Development Trust to co-ordinate investment
Return to islands such as the Salomons and Peros Banos, but initially not Diego Garcia
The report publication comes ahead of an appeal by the Foreign and Commonwealth Office in the House of Lords this June.
The government has resisted previous attempts to send families home, despite court decisions which have all ruled in favour of the islanders.
A FCO spokesman said they had not yet seen a copy of the report. "We will of course consider it. Amongst other things, we will want to ensure it is an independent report and we will look at the evidence gathered, given no visits were made to the islands".
He said a FCO-backed study in 2000 was conducted by independent experts and came down heavily against the feasibility of resettlement.
"While the report concluded that short-term habitation for limited numbers on a subsistence basis is possible, it also emphasised that any long-term resettlement would be precarious and costly.
"It is important to remember that the outer islands, which have been uninhabited for over 30 years, lack all basic facilities and infrastructure."
The new report estimates that the total cost of the resettlement plan to the British government would be £25m.
It also predicts the burden on the tax-payer would be alleviated to some extent by private investment and grants from external agencies.
The costs are worked out on the basis of 150 families returning - under 1,000 people in total. This is the number the UK Chagos Support Association estimates want to return.
Secret US pact
Diego Garcia has been used to launch bombing missions in Iraq
Officially part of the British Indian Ocean Territory, the Chagos archipelago is made up of more than 60 islands - the largest of which is Diego Garcia.
The tiny islands were secretly handed to the US in the 1960s, with a promise that Britain would remove the inhabitants.
The UK received a substantial discount towards its Polaris submarines and the US got a strategically-placed air base on the island of Diego Garcia, which has since been used to bomb Iraq and Afghanistan.
Over 1,800 Chagossians were forcibly removed. Many were sent to Mauritius and the Seychelles, others were brought to the UK, and a few ended up in Switzerland.
Over the last decade the British government has been embroiled in a long legal battle with the expelled families over their right to return.
In 2000, the courts ruled that Chagossians could return to their homes in 65 of the islands, but not to Diego Garcia. The then foreign secretary, Robin Cook, said the government would not appeal.
But in 2004 the government used the royal prerogative to effectively nullify the decision.
Last year the High Court overturned the order and rejected government argument that the royal prerogative, exercised by ministers in the Queen's name, was immune from scrutiny.