In the near future, humanity is faced with a global energy crisis. Man has managed to exhaust Earth’s natural resources, and the RDA (Resources Development Administration) sees a solution to this catastrophe in the form of unobtanium, an energy-rich element that exists on the moon Pandora, a jungle planet orbiting a gas giant in the distant Alpha Centauri galaxy. Mining unobtanium is a difficult and costly endeavor, not only because of Pandora's distance from the Earth, but also because the planet itself is dangerous to humans: Pandora’s atmosphere is toxic to humans and the Na’vi, a blue-hued race of beings, already inhabit it and protect its environment vigilantly.
Human scientists have managed to create avatars, half-human, half-Na’vi hybrid clones that can freely move around and operate in Pandora’s poisonous atmosphere. Human operators have their consciousness “uploaded” into these surrogate bodies. A paraplegic marine named Jake Sully is given a second chance at life when he replaces his identical twin brother as an avatar operator. He is shipped to Pandora to serve as a bodyguard for Dr. Grace Augustine, head of the Avatar program, and xenobiologist Dr. Norm Spellman as they study the native flora and fauna of the planet. An ex-marine, Jake is not a natural fit for the job, but the military wing of the RDA hopes that by making nice with the scientists and integrating with Na'vi life, he can learn more about how to extract the unobtanium they so desire, either by encouraging the Na'vi to leave their "Hometree," or through force, if necessary.
A large alien animal attacks Jake while he is on duty protecting the two scientists, and he runs into the jungle to escape it. There, a female Na’vi named Neytiri rescues him and takes him to her tribe after witnessing an omen that seems to suggest that Jake is an asset to the tribe. Neytiri’s mother and spiritual leader, Mo’at, orders her to induct Jake into their clan. When Jake returns to headquarters and human life, Colonel Quaritch, Security Head for RDA, promises to give Jake back his ability to walk if he agrees to spy on the Na’vi and collect information about their customs and secrets.
Upon discovering this arrangement, Dr. Augustine, the head of the Avatar program moves her team to a remote station to better study the natives' customs and to keep Jake away from the manipulative colonel. Jake soon becomes supportive of the Na'vi's plight as he gains a better understanding of their ways, and he proves himself to be a worthy Na'vi warrior. He is eventually integrated into the tribe and Neytiri chooses him as a mate. With his alliances changed, Jake sabotages a bulldozer that was tasked with destroying a sacred site, an act that prompts the RDA to order the complete destruction of Hometree. Dr. Augustine argues that the destruction of Hometree would also affect all life on the planet, so Parker Selfridge, RDA Head Administrator, gives her and Jake one hour to plead their case with the Na’vi to evacuate their homes.
Back with the Na'vi, Jake acknowledges that he initially worked as a spy, which makes him a disgrace in the community. Colonel Quaritch has Jake, Dr. Augustine, and Norm unlinked from their avatars and thrown in a prison cell, but they are able to escape with the help of a sympathetic pilot named Trudy. During their escape, Dr. Augustine is fatally injured.
Wishing to win back favor with the Na'vi, Jake sets into motion a daring plan to connect his mind to a toruk, an immense dragon-like creature both revered and feared by the Navi, in order to redeem himself with the tribe. When he successfully binds with the toruk and becomes its rider, he wins the respect of the Na’vi once more. He manages to locate the survivors of the Hometree destruction at the Tree of Souls and begs Mo’at to heal Dr. Augustine. They attempt to “upload” her consciousness into her avatar body with the aid of the Tree of Souls, but her human body dies before the process is completed.
Jake, supported by the new tribal chieftain Tsu’tey, gathers and unites the remaining tribes to fight the RDA. Quaritch mounts a pre-emptive strike anticipating the retaliation. He targets the Tree of Souls, thinking that its destruction will dishearten the Na’vi. Despite having successfully rallied the surviving tribes, Jake is uncertain of their chances of victory and prays to Eywa, the patron goddess of the Na’vi.
The RDA’s superior technology and weaponry overwhelm the Na'vi, but the animals of Pandora join in the fight, and change the course of the battle. Neytiri takes this to mean that Eywa has heard Jake’s prayer and has responded by sending assistance.
Jake and Quaritch face off and Jake manages to destroy the bomber craft before it can incinerate the Tree of Souls. Quaritch escapes and severs the avatar link unit that houses Jake's human body, subjecting him to Pandoran atmospheric toxins. Neytiri arrives just in time, however, killing Quaritch and saving Jake. All humans, save for Jake and a select few, are commanded to leave Pandora and return to Earth. Jake's consciousness is then permanently transferred into his avatar.
