Pupils in primary and secondary schools across England lack an overview of world history and have little sense of chronology, Ofsted inspectors warn.
Inspectors said the history curriculum must be reviewed
The watchdog said the curriculum was too England-focused, ignoring the rest of the UK and Europe.
They also complained that after the age of 13, only one in three children studies history at all.
Ministers and Ofsted say a new secondary curriculum from 2008 will address many of the points raised.
The watchdog based its findings on inspections carried out between 2003 and 2007.
It said the biggest issue for school history was its "limited place" in the curriculum and that history in primaries had been neglected in recent years with the focus on literacy and numeracy.
"History, along with some other subjects, has been relatively neglected in primary schools in recent years as schools have focused on literacy and numeracy," the report said.
"History's limited role is also apparent in secondary schools. In Key Stage 4 (the GCSE years), only just over 30% of pupils study history and fewer still post-16."
The inspectors said the subject also faced prejudice, with some policy developers, senior school managers, parents and pupils seeing history as less important or relevant than other subjects.
Inspectors identified that pupils were poor at establishing a chronology and did not make connections between the areas they had studied. As a result, they were not able to answer the "big questions".
"Although pupils often know something about selected periods or events - for example, children in Victorian times, Henry VIII and his wives or the Aztecs - they are weak at linking this information to form an overall narrative or story."
Ofsted said history lessons could help tackle prejudice
The report continued: "Pupils of all ages tend to study particular issues in depth but are seldom encouraged to form overviews or draw wider implications."
Ofsted raised concerns about schools focusing too heavily on aspects of English history.
"Those parts of the curriculum relating to Scotland, Wales and Ireland are very largely ignored, as are major European and world themes.
"Importantly too, in many schools, the stories of the people who have come to Britain over the centuries are ignored, even though these include the personal histories of some of the pupils."
Inspectors said "curriculum innovation" could help understanding and counter prejudice and racism.
They said history was linked to debates on citizenship and "Britishness" and could help pupils understand relevant historical contexts.
The report highlighted that most teachers of history in primary schools were non-specialists.
Inspectors said the "limited training and subsequent lack of confidence" of teachers meant they were unwilling to be creative with the curriculum.
"Post-graduate initial teacher training courses for new primary teachers and the subsequent induction year provide very limited experience of teaching history."
Primary schools are urged to devise a more coherent curriculum "that links more closely with pupils' needs and prepares them for life".
The report said the needs of "high-achieving historians" were also being overlooked.
Schools Minister Jim Knight said: "History is already a strong subject in schools but action we are taking on the types of issues raised in today's Ofsted report will help us improve standards even further.
"We agree with many of the points raised by Ofsted and addressed them in our revised secondary curriculum launched last week.
"The new curriculum has strengthened the requirement that all pupils need to have a good chronological understanding of history, this is compulsory at primary Key Stages too.
"Schools must also teach a broad spectrum of local, British, European and world studies at each Key Stage providing pupils with a thorough grounding in historical knowledge."
The Historical Association says it is concerned that timetable changes in schools are further cutting time devoted to history.
Heather Scott, chair of the association's secondary committee, said: "We remain particularly concerned by the growing number of secondary schools ending pupil statutory entitlement to Key Stage 3 history in Year 8 by collapsing the Key Stage into two years.
"In effect, time for history is reduced by a third and the age at which pupils no longer study the subject falls to 13."