Important transport projects such as high-speed rail and road links between Wales and England are not being given enough priority, MPs say.
The Welsh Affairs Select Committee is calling for better co-operation between UK and Welsh ministers to create a joined-up public transport policy.
It also wants later timetabling of trains between south Wales and London to promote entertainment and tourism.
Both UK and Welsh governments say ministers are in close communication.
It suggested that high peak-time fares were discouraging people from leaving their cars at home.
Those passengers who did decide to take to the train found there was often insufficient rolling stock, especially at busy times.
The committee said there had been only minor improvements to the service on the First Great Western main line, and the general level of service remained "unacceptable".
"If people are going to be persuaded to leave their cars at home and take public transport, then the services they use must be up to scratch," said the committee chairman, Dr Hywel Francis.
The committee's report on cross-border transport warned that important road links were not being funded as they were not a priority for English regions.
It also said trains were not good enough.
"Although we heard of some examples of good practice, for example in the north-east, too many opportunities for improvements are being missed."
Top of the list of priorities for the MPs is the electrification of the rail line between London and Swansea.
The committee said it would lead to significantly better services for passengers.
The report also suggested that later running of trains from south Wales would help promote entertainment and tourism in the area, something it said had been seen in cities like Bristol and in Yorkshire.
David Jones, the MP for Clwyd West, who is a member of the committee, said the freight industries in England and Wales currently operated as if they were in different countries.
"We were quite impressed with the Welsh road freight strategy. The difficulty is that it's not linked up with the English one," he said.
"And of course the big problem is that most heavy freight journeys either end or start in England.
"We are now arriving at the situation where the English department for transport and the Welsh Assembly Government are in some respects behaving as if they're in totally different countries and possibly in different parts of the world. And this is something we have really got to start addressing."
Both the Department for Transport (DfT) and the Welsh Assembly Government said rail transport was a vital issue for them.
"The government will be investing £15b in the rail network across England and Wales over the next five years, and we have been working closely with the Welsh Assembly Government to examine the detailed case for electrification of the Great Western main line between London and Swansea," said a DfT spokesperson.
"We expect to make an announcement on this in due course"
But in their report, MPs were also unhappy at the way the DfT allowed regional authorities in England to take some decisions on road priorities.
It said it was not acceptable for the department to leave such matters to bodies with limited budgets and remits.
"The DfT, the Welsh Assembly Government and local authorities on both sides of the border must review their priorities and ensure closer working," added Dr Francis.
The committee was also critical of public transport links to major airport hubs, such as Birmingham, Liverpool and Manchester.
It said that cross-border traffic could also be reduced if Cardiff airport served more destinations.
However, the mention of Cardiff airport in the report will be contentious, coming just days after it was announced that plans for a new airport access road in the Vale of Glamorgan were being dropped.
The area's MP John Smith said the decision was "economic lunacy" and a "reckless decision for the Welsh economy".
The Deputy First Minister Ieuan Wyn Jones also announced on Wednesday that plans for a six-lane M4 relief road around Newport were being scrapped, after the cost rose to £1bn from its £340m estimate in 1998.
Responding to the MPs report, a spokesperson for the assembly government said officials and the Deputy First Minister continued to work closely with their UK counterparts.
"We also work closely with local authorities to improve planning and delivery of transport issues in Wales, for example in the development of the national transport plan," added the spokesperson.