But efforts to curb the supply of illicit drugs had failed, the report found.
"Most of the prison system efforts on drug and alcohol problems are directed at supply reduction with limited evidence available for their effectiveness," a summary said.
In NSW, 42 per cent of male inmates and 54 per cent of female prisoners were reported to be using at least one illicit drug regularly or almost daily in 2009.
Some 92 per cent of Queensland prisoners being released from custody were found to have a history of illegal drug use.
Professor Margaret Hamilton, from the ANCD, said prisons underused harm reduction measures even though they were far more effective than drug supply reduction measures.
"Even when implemented there are usually limits on the number of actual prisoners who can take part in these programs," she said in a statement.
The ANCD criticised state prison authorities for placing more emphasis on drug detection dogs and urine testing compared with running drug treatment programs.
The report authors said they encountered trouble getting information.
The findings are being released on Tuesday at the National Drug and Alcohol Research Centre's annual symposium at the University of NSW.