It argued that not enough funding was being placed in this area and more work needed to be done to raise awareness and ensure more people can access this form of therapy.
One woman quoted in the research said of her 62-year-old husband, who has dementia: 'Music is now the one thing I can share with ... [him] that seems to give him pleasure.'
There are about 850,000 people with dementia in the UK. That number is expected to rise to 1 million by 2025 and 2 million by 2051. The annual cost of dementia in the UK is £26.3bn. The cost is expected to exceed £50bn a year within the next three decades.
The report said considerable savings may be achievable if the onset of the chronic disorder could be delayed.
'There is emerging evidence to suggest that music may help to delay the onset of dementia and improve brain function and information recall,' it said.
The work, carried out by a commission set up by the International Longevity Centre thinktank and the Utley Foundation, a private family charitable trust, will be presented to MPs and peers in the House of Lords on Thursday.
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It warned that only 5% of care homes are using music therapy effectively. They are doing so through community-based music groups, live music in care homes, playing an instrument or using personalised playlists.
The commission has called for music therapy to be promoted by the NHS through personal health budgets and integrated personal budgets. It also urged the introduction of an ambassador for dementia and music, as well as a national campaign recognising the value of music in this area.
The report said: 'The benefits of music for people with dementia are clear and yet why is it that so many people with dementia are not accessing appropriate music-based interventions? At the heart of this debate is the right for people with dementia to have not just a life, but a good life and to be comforted and enlivened by the power of music.'
Dr Laura Phipps, of Alzheimer's Research UK, said: 'NHS guidelines suggest music therapy as a possible way to help people with dementia deal with complex behavioural symptoms. As more studies start to explore the benefits of music in dementia, this report highlights the importance of developing robust and practical approaches to explore the benefits and cost-effectiveness of music interventions, which are often delivered in very diverse and tailored ways.
'It is vital to explore all avenues to improve the lives of people with dementia, as well as ensuring that they can benefit from such developments, and research has an important role to play here.'
Kathryn Smith, the director of operations at the Alzheimer's Society, said: 'Historically, there hasn't been much research into how music can help people with dementia. It is great, therefore, to see the potential of the creative arts being tapped into by researchers. This could really help us to understand any benefits of music for people with dementia and other important points, such as how people can best access music.