Increasingly tough lesson observation programmes have been credited with ensuring more than 60 per cent of colleges are now rated good or outstanding.
Ofsted's review of colleges' improvement found that observations were crucial to high-quality teaching. Incentives for lecturers, including cash, have also helped.
The review said: "The first step for many colleges visited, particularly those which had been judged inadequate, was to concentrate on eradicating unsatisfactory teaching. This generally involved strengthening the internal lesson observation procedures and ensuring grading was more accurate."
Increasing numbers of colleges are carrying out observations with no warning, the inspectors found. But they added that a stringent observation programme must be allied to good support systems to enable lecturers to improve.
Some colleges have created incentive systems, with one offering pound;200 payments to lecturers whose lessons receive the top grade.
Ofsted itself acknowledges the risk that the lesson observation system could be seen as "bullying".
The report said: "Performance management is sometimes perceived to be either a punitive or a bureaucratic process which inadequately trained or ineffective middle managers implement without producing any positive benefits."
One college was praised for securing its improvement without a single lecturer having to leave because of issues of competence.
Since 2005, the number of colleges rated good or outstanding has risen from just under half to nearly two-thirds. Out of 350 colleges inspected, only 12 are now in the "failing" category.
Ofsted said improving colleges tended to agree with its own mantra that "satisfactory is not good enough". They also demonstrated better use of data to spot potential problems and benefited from well-informed governors who challenged managers effectively about the college's performance.
Where colleges were less successful, this was sometimes the result of moving into new curriculum areas without sufficient preparation.
Sixth form colleges were expanding to offer adult education, while general FE colleges which had not previously taught 16- to 19-year-olds were admitting teenagers, sometimes without staff being prepared for dealing with an unfamiliar kind of student.
Some colleges were tempted to continue offering A-levels because of the qualification's high status despite poor results, when they might have been more effective focusing on other qualifications.
Dan Taubman, senior national education officer for the University and College Union, says lesson observations continue to be a cause of stress among lecturers. "I have heard enough accounts to be very concerned about it," he said.
"We're not in favour of observations without notification. It can be extremely disruptive for both teachers and learners."
Mr Taubman said it was important for observations to be carried out by trained teachers, who should also have dedicated training on how to conduct observations and give constructive feedback.
He said they should also be linked to appraisals and to the 30 hours a year professional development now required of every lecturer - something which the Ofsted report said was being done by the best-performing colleges.