Passengers are being driven off the railways thanks to the "exorbitant" fares charged by train operators.
Public money totalling £87m a week is spent on the rail network
The cross-party Commons transport committee said passengers were "held to ransom" by companies which tried to "see how much we can get away with".
They criticised government complacency for failing to ensure value for money.
The Association of Train Operating Companies (Atoc) said the report was "over the top" and cutting fares would mean a "huge increase in subsidy".
A total of £87m a week of public funds are poured into the rail network.
Responding to the committee's report, Rail Minister Derek Twigg said there were more than a billion passenger journeys last year - "the most for more than 40 years which demonstrates that the railways are an attractive choice for many people".
He added: "We want to price people on to the railways by making sure attractive prices are available.
"There are some excellent value fares, but it is true that the system can be complicated for passengers and this report highlights important issues."
Meanwhile the Conservatives said the government was trying to "price people off the railways" and the Lib Dems said the UK had the highest rail prices in Europe.
In its report, the committee said the privatised rail industry had failed over a decade to "get fares and ticketing right".
"Neither passengers nor taxpayers are getting value for their money," it added.
"The situation is deeply unacceptable."
And it said ministers must bring in effective regulation if they were to achieve a significant shift from road to rail - key to cutting greenhouse gas emissions.
MPs were particularly critical of steep rises in the cost of open tickets bought on the day of travel which, it said, were now "absurdly high".
"The 'see how much we can get away with' attitude of operators has put the thumbscrews on those passengers who have no option but to travel on peak-hour trains using fully flexible open fares," the report said.
The "deeply fragmented and highly complex" array of tickets offered by companies were an "insult" to passengers, it added.
"It is unacceptable that in order to purchase a rail ticket passengers are faced with up to a dozen different products, most of which have subtly different conditions and restrictions," it said.
And it said companies appeared to exploit the Christmas holiday rush to maximise profits.
Customer group Passenger Focus said that, while passenger satisfaction was "on the up", rail users did not think they were getting good value-for-money.
"It can be difficult to get a good value ticket so some passengers feel like it's a lottery," chief executive Anthony Smith said.
"The system is too complicated so train companies will have to work really hard to simplify the way they sell tickets."
Atoc director general George Muir said: "This report calls for cutting rail fares but without having the courage to admit the huge increase in subsidy this would mean.
"As for fares complexity and the other things the report complains about, we acknowledge that there are issues to address but this report is completely over the top."