Name-calling is rife in many schools, but is often dismissed as simply "banter", according to a new Ofsted report into bullying.
It found that pupils are using insults relating to sexuality, intelligence, race, appearance and family circumstances, with some saying it was acceptable if the words were being used between friends.
But while students admit to using language that they know is inappropriate, the report also raises concerns that some teachers were not aware how frequently it was being used.
The Ofsted report, based on visits to 56 schools and discussions with around 2,000 pupils and staff, looked at the best ways that schools can prevent and tackle bullying.
It said it was clear that pupils were using derogatory language outside of the classrooms, such as in the playground, although at times it spilled over into lessons.
Words such as "stupid", "idiot", "mong", "spazzer" or "spaz" were used when pupils struggled with work or a sport, it said, while other youngsters told inspectors that terms such as "gay", "slag" or "slut" could be used against classmates.
The report warned that "gay" was often used as an insult, with one secondary school pupil saying it was used to mean "rubbish".
School staff also said that the use of the word "gay" was a "common issue".
"The disparaging language most commonly heard by pupils in both primary and secondary schools related to perceived ability or lack of ability - mainly the latter; race and, less commonly, religion; sexuality; appearance; family circumstances; and, in secondary schools, sexual behaviour," the report said.
Susan Gregory, Ofsted director of education and care, said: "Schools must develop a positive culture so all pupils learn in a happy and safe environment. Teachers should receive the right training and support so they have the skills and confidence to teach pupils about diversity and the effects of bullying."