The report says there are up to two-million drug addicts, some of them schoolchildren, with an estimated five tonnes of narcotics consumed every day in the capital, Tehran.
Prostitution is also said to be sharply increasing, along with divorce rates and suicides.
The report comes from Mohammad Ali Zam, the head of Tehran's cultural and artistic affairs, who is seen as an influential figure.
His report found a dramatic rise in the problems between 1998 and 1999.
"Drug addiction is the rage among schoolchildren, prostitution has increased 635% among high school students and the (growth) rate of suicide in the country has exceeded the record by 109%," says the report.
Mr Zam says the average age of prostitutes has dropped from 27 to 20 years over the past few years, with a growing but unspecified number of women involved.
Nearly all the young girls who run away from home end up as prostitutes, he said.
The report also finds that many young Iranians are neglecting their religious obligations.
"Seventy-five per cent of the country's 60m inhabitants and 86% of young students do not say their daily prayers," says the report.
The BBC's Reza Azam says the report - published in a newspaper - will have made shattering reading for many people in Iran
Rosy picture
Officials have generally painted a rosy picture of life since the Revolution in 1979, which placed great emphasis on personal morality as well as responsibility.
But the fact that such a grim picture has been published at all, is being seen as another sign of the rapid changes in Iran.
University professor Hassan Bolkhari, a cultural adviser to the education ministry, said speaking openly about such problems was a step towards combatting them.
"So far, the establishment's approach was idealistic," he said.
"Fortunately, now we see there is a greater degree of realism. This report is just a true reflection of bitter realities in our society," he said.
Easy availability
The authorities in Iran have been unable to stem the flow of drugs across the border from Afghanistan, despite a desperate battle.
But Mr Zam's report says that easy availability of opium is only part of the problem. He says the young are turning to drugs because of a lack of any other alternative entertainment.
Poverty is also cited as a cause of some of the problems.
Mr Zam says 12m people live below the poverty line, and huge numbers are flocking to cities from villages.
The country has one of the world's youngest populations, with 35m people under the age of 20.
Uunemployment is rising as President Mohammed Khatami struggles to liberalise the economy.