Mental illness risks being trivialised because words such as anxious and depressed are being flippantly used to describe routine emotions like worry or sadness, the National Mental Health Commission says.
The incorrect use of clinical diagnoses meant some people had become desensitised to the seriousness of mental illness, research by the commission found.
"Co-mingling mental health terminology with our everyday speech can make us deaf to the real meaning and significance of mental health issues and could cause us to overlook or minimise the needs of someone experiencing a genuine mental health difficulty," the report said.
"While many individuals espouse open-mindedness, others hold on to judgmental and, in some cases, bigoted views towards mental illness."
Researchers interviewed groups of people around the country and asked them about their views and experiences of mental health and suicide at home, work and with their friends.
"That term depression gets thrown around so much now it's almost lost its meaning," one respondent said. "Unhappy is one thing; depressed is another."
National mental health commissioner, Janet Meagher, said people were well educated in the terminology of mental illness but did not always understand what having a mental illness meant or how to recognise it.
"We've created a little monster," she said at the launch of the report on Tuesday.
"What a terrible thing if we misread someone who says they're depressed as just having a bad day when they may be genuinely reaching out."
Many respondents said they lacked the most basic knowledge of mental illness and would not know any signs to look out for in identifying it in someone else. Less than half of Australians experiencing symptoms of mental illness consulted a health service, Ms Meagher said, and mental health services needed to become a higher priority for governments.
"This study highlights that the stigma associated with mental illness is still one of the biggest barriers to treatment," she said.
"We need to do better as a society to support people who need help."
Respondents were particularly harsh towards people they thought were faking mental illness or using it as an excuse, the report found. They were also unsympathetic towards those perceived to have a self-inflicted mental illness, for example through drug use.
Some indicators of mental illness include withdrawing from social situations, using drugs, risky behaviour, describing feelings of worthlessness and low self-esteem.
The Commission said the report would contribute to discussions and policy on mental health and suicide prevention.
Support is available for anyone who may be distressed by phoning Lifeline 13 11 14; Mensline 1300 789 978; Kids Helpline 1800 551 800.