It warned that barring major gains over the next seven years, the Millennium Development Goal of halving the number of people without access to basic sanitation by 2015 would be missed.
The report was prepared by the World Health Organization (WHO) and the United Nations Children's Fund (UNICEF).
"At current trends, the world will fall short of the Millennium sanitation target by more than 700 million people," said Ann Veneman, the UNICEF executive director. "Without dramatic improvements, much will be lost."
The largest affected populations are in Africa and southern Asia, where coverage is more than 10 percent below the rate needed to meet the targets.
In Eritrea, for example, only two percent of the population received improved sanitation in the form of flush-toilets, latrines, or composting toilets from 1990 to 2006.
In southern Asia, some 778 million people still practice open defecation, putting children at risk for diarrheal disease, a leading cause of death for infants in developing countries, according to the report.
Regarding accessible, safe drinking water, the report was more positive: the number of people not using improved drinking water sources has fallen below one billion for the first time since 1990.
"Current trends suggest that more than 90 percent of the global population will use improved drinking water sources by 2015," according to the report.
In several countries, the gains were considerable. Since 1990, Myanmar has managed to increase access to safe water for 68 percent of the population, and in Vietnam 47 percent of the population gained access.
Sub-Saharan Africa remains one of the few regions in the world that is not on track to meet the safe drinking water targets.
One reason may be that many people are reliant on water sources a long distance from their homes, the report said.
It found that if people are forced to travel more than 30 minutes to retrieve safe water, they collect less and compromise their drinking water needs by relying on unsafe sources more often.
"If we want to break the stranglehold of poverty, and reap the multiple benefits for health, we must address water and sanitation," WHO Director-General Margaret Chan said.