Premier Annastacia Palaszczuk has ruled out decriminalising drugs despite a new report saying it would cut the state's record rate of incarceration and save hundreds of millions of taxpayer dollars a year.

Key points: The Queensland Productivity Commission says "all available evidence" shows the war on drugs fails to restrict usage or supply

The Queensland Productivity Commission says "all available evidence" shows the war on drugs fails to restrict usage or supply Queensland spends $500 million a year just on drug law enforcement

Queensland spends $500 million a year just on drug law enforcement The QPC says proposed reforms would lower prisoner numbers by up to 30 per cent in five years

It is the centrepiece of 42 reforms proposed by the Queensland Productivity Commission (QPC), after its examination of the state's overcrowded prison system.

The QPC found decriminalisation would improve the lives of drug addicts without increasing the rate of drug use.

Its report estimated that if reforms were implemented immediately, "the prison population would be between 20 to 30 per cent lower in 2025".

"This would save between $165 million and $270 million in annual prison costs and avoid $2.1 billion in prison investments," the report said.

The QPC found imprisonment rates had been rising steadily for years, reaching the highest rate per 100,000 people since federation — with Indigenous people 10 times more likely to be jailed.

At the same time, it declared "all available evidence" suggested the so-called war on drugs by state authorities had "failed to curb supply or use", and cost the state about $500 million a year in law enforcement alone, with about 1,840 people jailed annually for drug crimes.

The QPC recommends decriminalising MDMA (ecstasy), calling it a "lower harm drug". ( Supplied: Curtin University )

The QPC said the system had also fuelled an illegal market, particularly for methamphetamine.

Since 1997, the rate of drug-related accidental deaths in Queensland has jumped 144 per cent.

"Illicit drugs are now responsible for more deaths than road accidents in Queensland," the report found.

The QPC said a cost-benefit analysis found decriminalising the use and possession of cannabis would save about $850 million, rising to $1.2 billion if the Government chose to fully legalise and regulate the supply of "lower-harm drugs such as cannabis and MDMA".

'Prisons don't work'

The State Government said it would explore implementing many of the proposals, but the Premier flatly dismissed watering down drug laws.

"There's no plans for any decriminalisation, full stop," Ms Palaszczuk said.

Opposition Leader Deb Frecklington said the Government needed to concentrate on reducing crime.

QUT drug policy expert John Scott says locking people up for cannabis offences is a waste of time and money. ( ABC News: Donna Field )

"Look, I have three teenage daughters and I can tell you this: it is not OK to take drugs," she said.

QUT School of Justice drug policy specialist John Scott said decriminalisation had been effective in other jurisdictions.

Debbie Kilroy says governments are overly focused on locking up offenders. ( ABC )

"Decriminalisation is the way to go, at least with cannabis," Professor Scott said.

"Locking people away for cannabis-related offences is waste of time and taxpayers' money — we know that prisons don't work.

"In terms of deterrence, drugs are more widely available than they have ever been, they are cheaper than they have ever been.

"Are we rehabilitating these people? No, we're not. They need health and welfare services, that's the answer."

Prison welfare advocate Debbie Kilroy, founder of Sisters Inside, said the State Government's response would do nothing to address the 50 per cent of prisoners who had a prior hospitalisation for a mental health issue or had been subject to a child protection order — a figure that rises to 75 per cent for female Indigenous prisoners.

"This report exposes the evidence of the number of people in prison that are low-harm that could be released today, but all we see is lock up, lock up, lock up and fear-mongering to instil fear in a community," she said.

"There's nothing to fear from the majority of people in our prisons today."