Inspectors said they were shocked by the level of drug use at a Teesside prison.
An unannounced inspection of Stockton's Holme House was carried out in July.
The overall findings were it was a challenging prison to run and the outcomes it delivered for prisoners were a real achievement.
The National Offender Management Service said it fully supported the efforts of the prison's governor to improve conditions at Holme House.
Chief inspector of prisons Nick Hardwick said almost one in five of the prisoners had told them they developed a drug problem while they were there.
Inspectors said drugs were a major issue despite the prison tackling it "robustly" and there was some drug-related violence.
Mr Hardwick said: "I think the drug use is a really significant problem at Holme House. I was quite shocked by it.
"This is a prison with high walls and barbed wire on the top but almost one in five of the prisoners there told us they had developed a drug problem while they were in the prison.
"I think we have to be clear that's not acceptable."
He said two things needed to be done - treatment for those with a problem to cut demand and making sure security measures were robust to stop drugs getting in.
Other concerns were that not all violent incidents were investigated, attitudes to prisoners with disabilities and staff/prisoner relationships were inconsistent.
Areas praised were measures to prevent suicide and self-harm, the enthusiasm of staff and the pride in their work, resettlement work and training and education.
National Offender Management Service chief executive officer, Michael Spurr, said: "I am pleased the chief inspector has recognised the positive outcomes HMP Holme House is delivering for prisoners and the pride that staff take in their work.
"The good work in preventing suicide and self-harm against a challenging background of building work at the establishment is testament to these efforts."