Older pupils are unable to access computer-aided design and manufacturing programs because some teachers do not know how to use them, Ofsted found.
A gap is also growing between schools that do have expensive kit and those that do not, a three-year study of the subject shows.
Christine Gilbert, the chief inspector, said: "More needs to be done to ensure that all schools are equally well equipped with the facilities, equipment and specialist teachers required to keep pace with the advancements in our ever changing, hi-tech world."
The subject is the most popular GCSE option for pupils, with almost 355,000 students entered for the exam last summer. Results in both primary and secondary schools are improving, inspectors said, but were only good or better in one in three primaries and two-thirds of secondaries.
The findings, based on visits to more than 180 schools between 2004 and 2007, highlight a consistent achievement gap in secondaries, where girls do better than boys.
Boys and girls need to be motivated in difference ways - boys respond well to computers and making models, while girls do better at drawing and writing, the report suggests.
Many teachers do not have the training to teach routine aspects of the subject that are more technologically demanding. As a result, students are not properly challenged and teaching at GCSE can become formulaic, inspectors said.
Richard Green, chief executive of the Design and Technology Association, said the lack of time devoted to training was a "big problem" as teachers needed to keep up to date with technological changes.
Keith Thomas, head of design and technology at the Cotswold School in Gloucestershire, said the cost of attending training run by private companies could be prohibitive.
In some parts of the country, problems recruiting specialist staff, especially in food technology and "systems and control", mean these parts of the curriculum are not taught at all.