An inquiry was launched in June last year following reports that face paint was used to impersonate a staff member in a student-led performance.
It caused offence to eight students of African heritage, prompting the review by Prof Dinesh Bhugra from King's College London.
He sets out 13 recommendations to help the university avoid similar incidents.
The college has accepted all of the recommendations, which include:
The report was sparked by complaints to officials following a student production called "Anaphylaxis", and led to 30 students being suspended from clinical practice for their part in the show.
Prof Bhugra said: "Whilst the university and School of Medicine did their best to deal with this incident in accordance with its established procedures, our report does highlight a number of specific and overarching issues that the university needs to consider and address.
"Our recommendations are intended to help the university avoid similar incidents in future and address wider equality and diversity issues identified.
"We are encouraged by the extremely positive way the university - at all levels - engaged with our work and its clear commitment to equality and diversity. We also welcome the university's commitment to take action in response to our recommendations."
Responding to the report on Wednesday, Cardiff University Vice-Chancellor Prof Colin Riordan said: "Whilst the review was prompted by an incident involving our medical students this was not about pointing the finger of blame or repeating the investigation undertaken by the university - rather it was about highlighting important areas of change that will help avoid similar incidents in the future.
"As a university we accept the report's recommendations and are already undertaking a number of proactive measures to address them.
"Our message is clear: offensive stereotyping of any person, or group of persons, is not acceptable."

The Nikkei 225 closed down 0.4% at 18,916.02, although the index had been as much as 1.6% in earlier trade.
Shares in Toshiba fell 9.8% on reports it was expecting record losses for the year to March.
After the market closed, Toshiba said it would cut 6,800 jobs at its consumer electronics division and report a record loss of 550bn yen ($4.53bn).
The news follows findings that Toshiba had overstated its operating profit for the past six years by a total of 151.8bn yen.
The US dollar fell to 121.20 yen, compared with last week's rate of 123 yen after the US rate rise, and the stronger yen weighed on Japan's major exporters.
Toyota shares closed down more than 1% and Honda ended down 0.7%. A stronger yen makes the products Japan's big exporters make more expensive to buy overseas.
Lower oil prices continued to weigh on energy-related shares. The price of Brent Crude fell to its lowest since 2004 in overnight trade to $36.17 a barrel, before recovering slightly to $36.49. West Texas Intermediate prices fell to $34.53 a barrel.
In China, Hong Kong's Hang Seng index closed up 0.2% at 21,791.68, while the Shanghai Composite index closed up 1.8% at 3,642.47 - a four week high.
In Australia, the S&P/ASX 200 index recovered early losses to close just 0.05% higher at 5,109.05.
South Korea's benchmark Kospi index closed up 0.3% at 1,981.19.

The victim was discovered with head and facial injuries in a bedroom of the flat in Ross House, Mount Vernon, on Monday morning.
The woman, who is 41, has also been charged with attempting to pervert the course of justice.
She is due to appear at Belfast Magistrates' Court on Thursday.
Cardiff University leaders say lessons are being learnt after a report into racial equality at its medical school.
[NEXT_CONCEPT]
Japan's Nikkei index closed lower, with shares in Toshiba sinking nearly 10% as the firm predicted record losses.
[NEXT_CONCEPT]
A woman has been charged with attempted murder after a 24-year-old man was found critically injured at a flat in north Belfast earlier this week.