The ninth annual Closing the Gap report does show improvements to some health outcomes and the number of Aboriginal and Torres Strait Islander students finishing school.
But it says the overwhelming majority of targets will not be met on current trajectories, with insufficient progress on life expectancy and literacy.
The 2017 Closing the Gap report has found just one out of seven targets to close the disadvantage gap between Indigenous and non-Indigenous Australians is on track to be met.
The number of Indigenous students reaching Year 12 has increased substantially, from 45 per cent in 2008 to 61 per cent in 2015.
But Malcolm Turnbull admits the broader picture is one of insufficient progress.
"Even with tens of thousands of dedicated Australians seeking to contribute and engage, we are still not making enough progress. We have come a long way since the (1967) referendum, but we have not come far enough."
The Prime Minister says he's particularly disappointed that while Indigenous child mortality rates have fallen, they aren't falling fast enough to meet the target of halving the gap with non-Indigenous children by 2018.
"We have made great gains in improving the key factors that influence the health of Indigenous children. But we are also reminded of the fragility of life, and the heavy burden of responsibility of families, communities and governments. I'm very saddened and disappointed that the target to halve the gap in Indigenous child mortality is not on track."
The report also found life expectancies are not improving fast enough to meet their target.
Indigenous mortality rates declined by 15 per cent overall between 1998 and 2015, but the number killed by cancer is rising.
Pat Turner, head of the National Aboriginal Community Controlled Health Organisation, says it's time for decisive action.
"We drew a line in the sand today. We've been coming here for nine years, listening to the same old, sad old stories that our grandparents knew about."
Community leaders gathered in Canberra to present Mr Turnbull with their battle plan on how the government could do better.
Called the Redfern Statement, their plan is backed by more than 50 organisations.
It contains dozens of policy recommendations in health, education and justice.
Among them is a call for a new national target to reduce the number of Indigenous Australians in prison.
Opposition Leader Bill Shorten says the Indigenous incarceration rate - 13 times higher than the non-Indigenous rate - is evidence the justice system is letting people down.
"We've got to have a better justice system and a better system of care where the default position isn't to send people based on their skin colour to jail. It's as simple as that. Your skin colour in this country should not be a predictor to be more likely to end up in jail. It is wrong that an 18 year old Aboriginal man is more likely to go to jail than to go to university."
Mr Shorten also called for the federal government to consider paying compensation to members of the Stolen Generation.
New South Wales, South Australia and Tasmania have all taken steps towards similar reparations.
In his speech, the Prime Minister announced the appointment of a new Indigenous Commissioner at the Productivity Commission to assess Indigenous policy, and pledged $50 million for policy research.
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