Ofsted said there was no assurance vulnerable children were safe or "adequately protected" by the authority.
It rated children's services inadequate and said standards had deteriorated since inspections in 2012 and 2013.
The council said a "robust improvement plan" was under way.
Reviews carried out in May and June rated children's social care services inadequate in three out of five areas, including children who need help and protection, children who need a permanent home and leadership.
They highlighted "too many examples" where children at risk had either not been seen by social workers. Those who had said their experiences "were not understood and acted upon with sufficient urgency".
Ofsted said the council had taken appropriate action to a number of immediate concerns.
But it said management oversight of individual cases - particularly of child sexual exploitation and missing children - was "variable and often poor".
"In examples seen by inspectors, a referral concerning a child who reported a serious sexual assault had initially been lost," the report said.
Inspectors added children had "far too many changes" of social workers and that the Labour-run authority had a "high reliance on agency staff".
"This means that children and families get frustrated with the changes, having to tell their stories over and over again, and cannot trust that their social workers will stay for very long," Ofsted said.
Jan Gavin, the council's head of children's service, said "solid foundations" had been laid to act on the recommendations and a permanent senior management team had been appointed.
"I can assure residents that the safeguarding of children in Reading is a top priority for the council and a robust improvement plan is already in place.
"We are addressing our recent over-reliance on agency staff with an aggressive, and so far successful, recruitment campaign to attract permanent staff.
"We are not complacent and we recognise there is much to be done and we do not underestimate the challenges we face."
"Serious, persistent and systemic failures" have been found at Reading Council's child protection services, a watchdog has warned.