A national centre of excellence and a £2,000 bursary for university will be among the provisions for improving the lives of children in care.
Education Secretary Alan Johnson announced he also wanted to prevent children "slipping into care where there was family provision".
He added that "no child should be sucked into the system by default".
A key part of the package would be allowing young people to stay with foster parents up to 21 or beyond.
The proposals would also ensure that they "do not move around between placements as frequently as is often the case now".
Mr Johnson, who narrowly avoided being taken into care when orphaned as a young child, said: "The mark of a decent society is how it treats its most vulnerable people.
"Children in care already face a tougher life than any child should have to.
"As a proxy parent, the state must raise its ambitions for these children, just as a good parent would, and transform their life chances through better emotional, practical and financial support at home and in the classroom."
He added the care system must act as a "traditional loving family", offering continued guidance and motivation.
'Driving up results'
Other measures in the Children in Care green paper include specialist recruitment campaigns for carers.
A tiered framework of qualifications, payments and standards is designed to ensure the best foster parents were recruited.
"By taking more trouble to get it right first time, we will avoid children being bounced from placement to placement," Mr Johnson said.
He said children in care must be given better education opportunities.
A new "virtual headteacher" would be appointed in every area, with "over-arching responsibility for driving up results".
Children in years 10 and 11 would not be allowed to move schools, to safeguard their education, Mr Johnson said.
Schools would also be expected to accept children in care even if they were full so such youngsters "are elevated to the best schools rather than being dumped in the worst".
Children-in-care councils would be established so the voices of youngsters would be heard, he said.
'Investments going in'
A recent report said 75% of the 6,000 people who leave care each year have no educational qualifications and within two years 50% will be unemployed.
Furthermore, 20% will be homeless and only one out of every 100 will make it to university.
Earlier, Tony Blair and Mr Johnson held a seminar at 10 Downing Street for Whitehall officials, charities, councils, schools and others involved in providing services for children in care.
The prime minister told those who attended: "If we look at the investments going in, it is very considerable, but when you look at the results, are they where they should be?"
Mr Blair said the system needed "to ensure that in the end none of these children are left behind and put out of the chance of having a decent life in the mainstream of society".
Shadow education secretary David Willetts welcomed the statement, telling MPs: "The system is letting down the nation's children in the greatest need."
But he questioned whether local authorities would have the capacity to deliver the proposed changes.
And Liberal Democrat education spokeswoman Sarah Teather said time and money needed to be invested to support foster parents. "Reducing the turnover of social workers must also be a priority," she said.
Robert Tapsfield, chief executive of the Fostering Network, said: "The implementation of these proposals will undoubtedly require significant additional funding: in order to translate well-meaning words into meaningful action."
Martin Narey, chief executive of children's charity Barnardo's, said: "The challenge now is to move from the admirable intent behind the green paper to delivering sustained change which has the potential to transform the life chances of these children."
Mr Johnson has already pledged an extra £100 annually per child for those who spend a year in care, as well as the establishment of a national £2,000 bursary for each student to help them attend university.
NCH, the children's charity which works with more youngsters in care than any other, recently called for a radical reform of the current system to address the disparity between children in care and others where achievements and lifestyle were concerned.