Ofcom said the bad language represented a "serious and repeated" breach of its rules and ordered the British state broadcaster to report the findings on its two main channels.
The watchdog said the BBC should have used a short delay to allow it to block any swearing during the live show.
The use of bad language at the event was "both likely and foreseeable," Ofcom said.
It also criticized BBC bosses for delays in issuing on-air apologies for the offensive language.
"The breaches involved the repeated use of the most offensive language before the watershed," Ofcom said in a written ruling. "There was in some cases a considerable delay in the broadcast of an apology.
Dozens of viewers complained after the Live Earth concert at Wembley Stadium was shown on the BBC last July. Phil Collins swore during a performance of "Invisible Touch" with Genesis, while Madonna swore as she urged the crowd to jump up and down.
Ofcom said it had decided not to fine the BBC because the breaches were not deliberate or reckless.
"We note Ofcom's sanctions and will be complying with their request to broadcast the statement of their findings," BBC said.
Live Earth concerts were staged around the world on July 7, 2007 to raise awareness of climate change.
© Reuters, by Peter Griffiths