Based on interviews with 2,265 people, aged 16 to 25, the charity found that half of unemployed young people often feel anxious about everyday situations and 46% avoid meeting new people.
The Prince's Trust Macquarie Youth Index suggests 13% of people in the UK aged between 16 and 25 often feel too anxious to leave their house, and those unemployed are more than twice as likely not to.
Martina Milburn CBE, chief executive of The Prince's Trust, said: "Thousands of young people often feel like 'prisoners in their own homes' because of anxiety.
"Without the right support, these young people become socially isolated - struggling with day-to-day life and slipping further and further from the jobs market."
Reacting to the findings, Employment Minister Esther McVey suggested the UK had seen "significant falls" in youth unemployment. adding that the government wanted to do more "as part of our long-term economic plan".
The report showed that almost half of unemployed young people "always" or "often" felt down or depressed, while 36% said anxiety had stopped them from looking after their health, and 38% said it prevented them eating properly.
Shirley Cramer, chief executive of the Royal Society for Public Health, said mental health issues like anxiety and depression can have a "devastating impact on young people's lives".
To see more on the report visit: www.princes-trust.org.uk/macquarieyouthindex/index.html