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From January to April 2006, Cameron worked on the script and developed a culture for the film's aliens, the Na'vi. Their was created by Dr. , a linguist at . The Na'vi language has a lexicon of about 1000 words, with some 30 added by Cameron. The tongue's include (such as the "kx" in "skxawng") that are found in the language of , and the initial "ng" that Cameron may have taken from New Zealand . Actress Sigourney Weaver and the film's met with Jodie S. Holt, professor of at , to learn about the methods used by to study and sample plants, and to discuss ways to explain the communication between Pandora's organisms depicted in the film.

From 2005 to 2007, Cameron worked with a handful of designers, including famed fantasy illustrator and renowned concept artist , to shape the design of the Na'vi with paintings and physical sculptures when Cameron felt that 3-D brush renderings were not capturing his vision, often working together in the kitchen of Cameron's home. In July 2006, Cameron announced that he would film Avatar for a mid-2008 release and planned to begin principal photography with an established cast by February 2007. The following August, the visual effects studio signed on to help Cameron produce Avatar. , who had collaborated with Cameron in the past, joined Avatar to help with the film's designs. for the film took several years. The film had two different production designers, and two separate art departments, one of which focused on the and of Pandora, and another that created human machines and human factors. In September 2006, Cameron was announced to be using his own 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 '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 (then chairman of the ). However, when attempted to take over, Fox exercised its . 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 you're crazier for thinking you can do this ..."

External audioJames Cameron interviewed by on writing Avatar.

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 , 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 plants and creatures, and 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 will lessen the financial impact on the studio and its financiers. A studio spokesperson said that the budget was "$237 million, with $150 million for promotion, end of story."