The breach was found in a mobile unit in Camp Hill, Newport, last year but has since been fixed, inspectors found.
More than 100 "vulnerable spots" where prisoners could gain access to out-of-bounds areas were also reported at the site, now known as HMP Isle of Wight.
A Prison Service spokesman said ministers would consider the findings.
HMP Isle of Wight officially opened last year after the merger of Camp Hill, Parkhurst and Albany prisons in 2009.
Last year officials foiled an escape by a convicted murderer who had used hidden codes in sudoku puzzles and written in "invisible" lemon juice.'Jail unprotected'
A report by the prison's Independent Monitoring Board (IMB) said the merger had reduced budget costs but not without impacting on "every aspect" of the establishment.
Drugs are "freely available" and "literally dozens" of mobile phones have been seized from prisoners over the past year, the report found.Brian Lawrence was convicted of murder in 2005
The main problem was recorded at category C prison Camp Hill, although Parkhurst and Albany were "far from drug and phone free".
The report said the amount of drugs left prisoners living in "real fear" for their safety, due to debts owed.
The board said it was concerned over the number of prisoners who had made their way on to the roof of the prison, prompting teams being deployed from the mainland at considerable expense.
The board also reported it was "totally unacceptable" that a prison housing almost 1,700 inmates had only one dog handler with two dogs. Previously the dog team had the equivalent of five full-time and one part-time handler working with 11 animals.
It said the "drastic reduction" left the jail unprotected for a cumulative total of more than 130 days a year.Foreign prisoners
The board has asked the justice minister to review the situation as a matter of urgency.
It said there needed to be "urgent attention" not only at HMP Isle of Wight but at other establishments housing foreign prisoners whose sentences had been completed but continued to remain inside awaiting deportation.
It commended a number of drug monitoring and rehabilitation teams for their work in trying to reduce drug and alcohol dependence.
Prison guards and the police were congratulated after foiling a planned escape by murderer Brian Lawrence, who communicated with accomplices using codes hidden in sudoku puzzles.
Lawrence had plotted to escape by helicopter from Parkhurst last summer using helicopter flights at the Isle of Wight Festival as cover.
A Prison Service spokesperson said: "We thank the Independent Monitoring Board at HMP Isle of Wight for their report, which will be fully considered by ministers.
"We will respond to the board in due course."
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