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Dari Januari ke April 2006, Cameron worked on the script dan developed a culture for the film's aliens, the Na'vi. Bahasa mereka dicipta Dr. Paul Frommer, seorang pakar bahasa USC. The Na'vi language has a vocabulary of about 1000 words, with some 30 added by Cameron. The tongue's phonemes termasuk konsonan ejektif (such as the "kx" in "skxawng") that are found in the Amharic language of Ethiopia, and the initial "ng" that Cameron may have taken from New Zealand Māori. Actress Sigourney Weaver and the film's set designers met with Jodie S. Holt, professor of plant physiology at University of California, Riverside, to learn about the methods used by botanists to study and sample plants, and to discuss ways to explain the communication between Pandora's organisms depicted in the film.

Dari tahun 2005 hingga 2007, Cameron bekerja dengan beberapa pereka, termasuk ilustrator fantasi terkenal Wayne Barlowe dan artis konsep terkenal Jordu Schell, untuk membentuk reka bentuk Na'vi dengan lukisan dan ukiran fizikal apabila Cameron berpendapat bahawa pentafsiran berus 3-D tidak menangkap visi beliau, sering bekerja bersama di dapur rumah di Malibu Cameron. Pada bulan Julai 2006, Cameron mengumumkan bahawa dia akan memulakan penggambaran Avatar for a mid 2008 release and planned to begin principal photography with an established cast by February 2007. The following Ogos, the visual effects studio Weta Digital signed on to help Cameron produce Avatar. Stan Winston, who had collaborated with Cameron in the past, joined Avatar to help with the film's designs. Production design for the film took several years. The film had two different production designers, and two separate art departments, one of which focused on the flora and fauna of Pandora, and another that created human machines and human factors. In September 2006, Cameron was announced to be using 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.

Fox was wavering because of its painful experience with cost overruns and delays on Cameron's previous picture, Titanic, even though Cameron rewrote Avatar's script to combine several characters together and offered to cut his fee in case the film flopped. Cameron installed a traffic light with the amber signal lit outside of co-producer Jon Landau's office to represent the film's uncertain future. In mid-2006, Fox told Cameron "in no uncertain terms that they were passing on this film," so he began shopping it around to other studios, and showed his proof-of-concept to Dick Cook (then chairman of The Walt Disney Company). However, when Disney attempted to take over, Fox exercised its right of first refusal. In October 2006, Fox finally agreed to commit to making Avatar after Ingenious Media agreed to back the film, which reduced Fox's financial exposure to less than half of the film's official $237 million budget. After Fox accepted Avatar, one skeptical Fox executive shook his head and told Cameron and Landau, "I don't know if we're crazier for letting you do this, or if your crazier for thinking you can do this..."

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 as "an emotional journey of redemption and revolution" and said the story is of "a wounded former Marine, thrust unwillingly into an effort to settle and exploit an exotic planet rich in biodiversity, who eventually crosses over to lead the indigenous race in a battle for survival". The story would be of an entire world complete with an ecosystem of phantasmagorical plants and creatures, and a native people with a rich culture and language.

Estimates put the cost of the film at about $280–310 million to produce and an estimated $150 million for marketing, noting that about $30 million in tax credits will lessen the financial impact on the studio and its financiers. A studio spokesperson, said that the budget "is $237 million, with $150 million for promotion, end of story".