MPs have accused solicitors of "keeping quiet" about alternatives to courtroom divorce battles, because they have no financial incentives to promote them.
Most divorce cases end up in court, the report says
The Commons public accounts committee said targets should be set for the number of cases referred to mediation.
A third of divorcing couples seeking legal aid had not even been told about mediation, a survey suggested.
The MPs' report suggested mediation in divorces was "quicker, cheaper and ... less acrimonious" than court cases.
Divorce mediators are neutral third parties in whose presence partners can discuss terms of separation, without having to go to court.
A report by the National Audit Office suggested that, of 149,000 disputes supported by legal aid between October 2004 and March 2006, only 29,000 attempted mediation.
It added that of 148 people surveyed, a third said mediation had never been discussed as an option.
The public accounts committee report said, on average, a legal aid-funded case that is referred to court costs about £930 more than a mediated case.
It said mediation should remain voluntary - but solicitors and other advisers should be set an annual target for cases referred to mediation.
It also found that there were no financial incentives for solicitors to refer clients to mediation and that 22% of the population lived more than five miles from a professional mediator.
Committee chairman, Conservative MP Edward Leigh said: "Mediation is often a swifter and less acrimonious path; and it is cheaper.
"It is important to avoid courtroom confrontations as far as possible, even if some avaricious lawyers are more than happy to cash in by keeping quiet about the mediation alternative."
The report said new proposals from the Legal Services Commission included a fixed fee system, rather than an hourly rate, which would give solicitors more incentive to refer clients for mediation.
And it has proposed making it a requirement for all clients to consult a mediator before being eligible for further legal aid funding.
The report said the Legal Services Commission should continue to work with solicitors to encourage them to promote mediation - and to improve its own monitoring systems so it can keep track of rates of referral to, and people's satisfaction with, mediation services.