Policy makers have been urged to plan care strategies to reduce a predicted large increase in mental health problems.
The King's Fund says the government needs to provide extra care and support to both improve the nation's health and to reduce the cost of mental illness in terms of lost productivity.
Its report, Paying the Price, says the cost of mental health services are set to more than double in the next 20 years.
While the prevalence of most mental disorders is likely to remain stable during the next two decades, the study claims that there could be a huge increase in dementia by almost two-thirds due to an ageing population.
As such the bill for mental health services is expected to grow from £22.5 billion to £47 billion.
The Paying the Price study also estimates that mental illness in England cost £50 billion last year.
Almost half, £22.5 billion, represents money spent on direct NHS and social care services to support people with mental disorders.
More than half, £26.1 billion, represents the estimated cost to the economy of earnings lost because of the thousands of people unable to work due to their mental illness.
The report suggests a number of ways to reduce the prevalence of mental health problems and to help thousands of people back to productive work.
Professor Martin Knapp, co-author of the report, said: "We found that paying for more people to be treated would create net savings as reductions in lost employment costs would outweigh treatment costs.
"With a third of adults with depression and a half with anxiety disorders not in touch with services there is significant potential to treat more people with those illnesses and make savings because of the boost to the workforce.
He added: "The government, the NHS, social services and employers need to extend efforts to help people with mental health needs who are of working age but not in employment to get back to work."
King's Fund chief executive Niall Dickson commented: "The fact that we are living longer is a cause for celebration but it will mean that the health and social care systems will have to cope with a dramatic increase in the number of people suffering from dementia.
"Unless there is a major breakthrough in drugs to arrest the course of this illness, there will be a great need for extra care and support, some of it quite intense.
"The projections in this report should help policy-makers and those responsible for local services plan for future demand."
In response to the report, a spokesperson for the Department of Health said: "We recognise that dementia is now one of the most significant health challenges facing our society.
"That is why we are determined to bring dementia out of the shadows and later this year we'll launch the first ever national strategy to improve the quality of life for people with dementia and their families."