When Avatar was titled "Project 880", a casting call was put out in June 2006 with a plot description provided, saying, "In the future, Jake, a paraplegic war veteran is brought to another planet, Pandora, which is inhabited by the Na'vi, a humanoid race with their own language and culture. Those from Earth find themselves at odds with each other and the local culture.
In December 2006, Cameron described Avatar as "a futuristic tale set on a planet 200 years hence [...] an old-fashioned jungle adventure with an environmental conscience [that] aspires to a mythic level of storytelling." The January 2007 press release described the film: "Avatar is also an emotional journey of redemption and revolution. It is the story of a wounded ex-marine, thrust unwillingly into an effort to settle and exploit an exotic planet rich in bio-diversity, who eventually crosses over to lead the indigenous race in a battle for survival," and "We're creating an entire world, a complete ecosystem of phantasmagoria plants and creatures, and a native people with a rich culture and language."
Actors Wes Studi, C.C.H. Pounder, Laz Alonso, and Peter Mensah are also in the film. Actor Michael Biehn entered talks with Cameron in March 2007 for a possible role in the film, but his involvement is not confirmed.
In June 2005, director Cameron was announced to be working on a project tentatively titled "Project 880" parallel to another project, Battle Angel. By December, Cameron said that he planned to film Battle Angel first for a summer 2007 release, and to film "Project 880" for a 2009 release. In February 2006, Cameron said he had switched goals for the two film projects – "Project 880" for 2007 and Battle Angel for 2009. He indicated that the release of "Project 880" would possibly be delayed until 2008. Later that February, James Cameron revealed that "Project 880" was "a retooled version of Avatar", a film that he had tried to make years earlier, citing the technological advances in the creation of computer-generated characters Gollum, King Kong and Davy Jones. Cameron had chosen Avatar over Battle Angel after completing a five-day camera test in the previous year. Cameron's early scriptment for Avatar circulated the Internet for years. When the project was re-announced, copies were subsequently removed from websites. In June 2006, Cameron said that if Avatar was successful, he hoped to make two sequels to the film. From January to April 2006, Cameron wrote the script. Working with Paul Frommer, linguist and Director of the Center for Management Communication at USC, he developed a whole language and culture for the Na'vi, the indigenous race on Pandora. In July, Cameron announced that he would film Avatar for a summer 2008 release and planned to begin principal photography with an established cast by February 2007. The following August, the visual effects studio Weta Digital signed on to help Cameron produce Avatar. Stan Winston, who had collaborated with Cameron in the past, joined Cameron's Avatar to help with the film's designs. In September, Cameron was announced to use his own Reality Camera System to film in 3-D. The system would use two high-definition cameras in a single camera body to create depth perception.
In December 2006, Cameron explained that the delay in producing the film since the 1990s had been to wait until the technology necessary to create his project was advanced enough. The director planned to create photo-realistic computer-generated characters by using motion capture animation technology, on which he had been doing work for the past 14 months. Unlike previous performance capture systems, where the digital environment is added after the actors' motions have been captured, Cameron's new virtual camera allows him to directly observe on a monitor how the actors' virtual counterparts interacts with the movie's digital world in real time and adjust and direct the scenes just as if shooting live action; "It’s like a big, powerful game engine. If I want to fly through space, or change my perspective, I can. I can turn the whole scene into a living miniature and go through it on a 50 to 1 scale. Cameron planned to continue developing the special effects for Avatar, which he hoped would be released in summer 2009. He also gave directors Steven Spielberg and Peter Jackson a chance to test the new technology. Spielberg and George Lucas were also able to visit the set to watch Cameron direct with the equipment.
Other technological innovations includes a performance-capture stage, called The Volume, which is six times larger than previously used and an improved method of capturing facial expressions. The tool is a small individually made skull cap with a tiny camera attached to it, located in front of the actors' face which collects information about their facial expressions and eyes, which is then transmitted to the computers. Besides a real time virtual world, the team is also experimenting with a way of letting computer generated characters interact with real actors on a real, live-action set while shooting live action.
In January 2007, Paramount Pictures announced a live-action adaptation of Avatar: The Last Airbender under M. Night Shyamalan and said that the project's name had been registered to the Motion Picture Association of America for movie title ownership, though a 20th Century Fox representative for James Cameron's Avatar indicated that the studio owned the movie title. Paramount eventually retitled its film as merely The Last Airbender. In the same month, Fox announced that the studio's Avatar would be filmed in 3D. Cameron described the film as a hybrid with a full live-action shoot in combination with computer-generated characters and live environments. "Ideally at the end of the of day the audience has no idea which they’re looking at," Cameron said. The director indicated that he had already worked four months on nonprincipal scenes for the film. Principal photography began in April, and was done around parts of Los Angeles as well as New Zealand. The live action is shot with the proprietary Fusion digital 3-D camera system developed by Cameron and Vince Pace. According to Cameron, the film will be composed of 60% computer-generated elements and 40% live action, as well as traditional miniatures. The performance-capture photography would last 31 days on a high-tech soundstage in Playa Vista. In October, Cameron was scheduled to shoot live-action in New Zealand for another 31 days.
To create the human mining colony on Pandora, production designers visited the Noble Clyde Boudreaux drilling rig in the Gulf of Mexico during June 2007. They photographed, measured and filmed every aspect of the rig, which will be replicated on-screen with photorealistic CGI.