Entwistle received a £450,000 settlement following his departure from the broadcaster in the wake of the pulled Newsnight investigation into Jimmy Savile and the flawed edition of the same show which wrongly implicated Lord McAlpine in the North Wales abuse scandal.
Chair of the House of Commons Public Accounts Committee Margaret Hodge said: "Public servants should not be rewarded for failure. But that was exactly what happened when the BBC Trust paid off the former Director General, George Entwistle.
"In order to speed his departure, he was paid £450,000, twice what he was contractually entitled to, and then, if that were not bad enough, 12 months' private medical cover and a contribution to the cost of his legal fees and public relations advice were added to the package.
"This cavalier use of public money is out of line with public expectations and what is considered acceptable elsewhere in the public sector."
She noted that the BBC Trust refused the offer of an immediate and independent audit from the comptroller and auditor general, inhibiting parliament's ability to hold the Trust to account.
Hodge added that, since 2010, £4 million has been paid out to ten departing senior managers, while 422 are receiving private medical cover as part of their remuneration packages.
The committee welcomed the BBC's actions to its past findings on off-payroll arrangements and expressed hopes that a similar response would be forthcoming for benefits and severance packages for senior managers.
Lord Patten, the chairman of the BBC Trust, had previously told MPs that he had no choice but to hand the £450,000 pay-off to Entwistle.
The package was criticised by MPs across all major parties after it was first announced.