The Office of Rail and Road (ORR) said that 80% of passengers do not claim compensation.
It wants clearer forms, a national publicity campaign, and better staff training, to encourage claims.
In response, the train operating companies promised to take action to improve the compensation process.
The ORR was responding to a so-called "super-complaint" by the consumer group Which?
Which? had complained in December 2015 that millions of people were being left out of pocket by the system.
Under the law, the ORR had 90 days to respond.
"We want all passengers to be able to claim the compensation they are entitled to. The information they receive needs to be better and the process must be clearer and simpler," said ORR chief executive Joanna Whittington.
Now the ORR is proposing:
Which? said the proposals were a step in the right direction.
"But this alone will not be enough to solve the problem for passengers in the long term," said Richard Lloyd, the organisation's executive director.
"The government must now ensure that the rail regulator has all the powers and duties it needs to be a consumer watchdog with real teeth."
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The Rail Delivery Group, which represents operating companies, said it would be making the necessary changes.
"There is always room for improvement and we know that we can do more to give our customers an even better deal," said Paul Plummer, chief executive of the Rail Delivery Group, which represents the operators.
"We will address all of the regulator's recommendations."
It promised a new National Rail Enquiries website, with links to individual train companies and their compensation schemes.
It also said there would be better communication on social media, with barcodes on posters to enable people to claim on their smartphones.
Since last July, passengers have been entitled to compensation in cash, rather than through vouchers.
Different train operators still have different agreements on compensation, but generally passengers qualify if their train is delayed by more than 30 minutes.
So-called "Delay Repay" is gradually being introduced across the network, which means that compensation will be paid regardless of what caused the delay.
From April, all but four operators will be signed up to the scheme.
In addition some operators, including Virgin and C2C, make automatic refunds in certain circumstances.

The 1954 Hague Convention was set up after World War Two but has never been adopted into law by the government.
Culture Secretary John Whittingdale says destruction and looting in Syria and Iraq by Islamic State militants shows it is now essential.
The UK is the only major nation not to have endorsed the convention.
More than 115 countries are party to the agreement, including all United Nations Security Council members, except for the UK.
The Hague Convention was meant to ensure nations and armies would not target cultural treasures.  The UK was one of the original signatories to the convention but it was never ratified.
The 1990s conflict in the Balkans saw the agreement revised and in 2004 the UK said it would ratify when time allowed.
Mr Whittingdale says the convention will now become law in the UK "at the first opportunity".
He said: 'While the UK's priority will continue to be the human cost of these conflicts, I am in no doubt we must also do what we can to prevent any further cultural destruction.
"The loss of a country's heritage threatens its very identity."
A fund to support future intervention by archaeologists to recover at-risk monuments in Iraq, Syria and Libya is also reportedly to be set up by the government at a summit in September.
Professor Peter Stone, a leading campaigner for the convention's adoption, says it was "fantastic news... as long as there are no further delays".
Shadow culture secretary, Chris Bryant, who says Labour is committed to prompt ratification, said earlier this month that he was "at a loss to understand" why the government had not yet acted.
The director of the British Museum, Neil MacGregor, is also among those to have called on the UK to ratify the convention.
IS militants have been accused selling Syria's cultural heritage to raise funds, leading to a UN ban in the trade of artefacts from the country.
There are fears the militants may destroy the 2,000-year-old Roman-era ruins in Palmyra in Syria, while in Iraq the ancient Assyrian city of Nimrud is among the sites they have targeted.
Millions of rail passengers should be given more help to claim money back when their train is delayed, the industry regulator has recommended.
[NEXT_CONCEPT]
A major international agreement designed to protect cultural property during military conflict is to be finally ratified by the UK.