Avatar is set in a future in which we're able to travel to distant planets and interact (read exploit) the natives. A huge corporation, backed by military forces to keep the peace, needs to mine a rare substance from the planet Pandora. Pandora's populated with humanoid creatures known as the Na'vi. The Na'vi have blue skin, yellow eyes, elf ears, are incredibly athletic, and tall. They're peaceful but can be fierce in battle, shooting arrows dipped in a toxin which kills almost instantaneously. In addition to the Na'vi, the planet is full of exotic-looking, dinosaurish creatures, humongous birds which can be ridden in battle, and phosphorescent plants.
The substance the corporation is on Pandora to mine is located at the base of a giant tree, which is also the spiritual center of the Na'vi. The corporation is using a two-pronged attack to get to the substance. They've got the military out making excursions into hostile territory to try to get to the material. There's also a scientific research arm of the company that's working on making inroads with the natives through the use of avatars.
Mixing human and Na'vi DNA, creatures who look like the Na'vi can be manipulated by scientists linked to their own avatar. The scientist rests in a hyperbaric chamber, connects to his/her avatar, and thus is able to interact with the Na'vi. The head of the research program is Dr. Grace Augustine (Sigourney Weaver), a chain-smoking, no-nonsense scientist who doesn't tolerate fools. Under her guidance, the Na'vi have learned to speak some English and together they're working on trying to come to a peaceful solution.
Into this already touchy situation comes ex-Marine Jake Sully (Sam Worthington). Jake's lost the use of his legs and is recruited into the avatar program with the promise he'll be approved for the costly surgery that will let him walk again. Because his now-deceased twin brother was a scientist whose DNA was used to create an avatar, Jake can slip right into the program without any real training.
Jake's first outing in avatar form is quite an awakening. In his Na'vi form, Jake can run and is in complete control of all of his motor functions. He doesn't need a wheelchair, and the experience is exhilaratingly freeing. It's also fraught with danger, which he ignores in order to explore Pandora.
On his first trip outside the company's base, Jake winds up being attacked and is cut off from the rest of the research unit. Forced to spend the night in an alien environment he knows nothing about, Jake only survives because he's rescued by Neytiri (Zoe Saldana), a powerful Na'vi who decides not to kill him only after the interference of
spirits that look like tiny jellyfish.
Believing she's received a sign from her ancient ancestors that Jake is meant for something special, Neytiri takes him under her wing, training him to survive on Pandora, and teaching him the ways of the Na'vi. As Jake learns more about these incredible creatures and their wondrous planet, he becomes fascinated with their culture, ultimately feeling more at home and more comfortable in avatar form among the Na'vi than back on the base with his human coworkers. He also falls in love with his teacher, a relationship that's frowned upon by her tribe.
As the ultimate showdown approaches, Jake's forced to take sides. The battle over the tree and the fight for the survival of the Na'vis' way of life dominates the last 40 minutes or so of Avatar, with James Cameron orchestrating a collision of the two races that's epic in scope.