In the next few centuries, an extra-governmental corporation called Resources Development Administration (RDA) is given sole ownership of mining rights to a substance called Unobtanium (kind of a stupid name, really) which is apparently a superconductor at room temperature and is used in the matter/antimatter engines of large star-faring vessels. The moon Pandora has one of the largest known deposits, but it's underneath the home village (a gigantic tree growing in a teeming jungle) of a tribe of the indigenous population, the NA'vi.
Unobtanium is worth $20 million per kilo, so the RDA is attempting to get the NA'vi to move their home so it can be mined. One of the ways is through diplomacy with the Avatar program. The program creates giant NA'vi/human hybrid bodies (by mixing DNA) into which a person's consciousness is then cast so that they can better interact with the NA'vi and hopefully get them to move peacefully. The RDA even sets up schools, so several members of the tribe even know a little English.
If the Avatar program cannot convince the NA'vi to move peacefully, the RDA staffs a private military that will take it from them by force. The commanding officer, Colonel Quaritch, has very little patience for the Avatar program and looks for any reason to use the force at his command. Quaritch is played superbly by Stephen Lang, and really does a fantastic job of making you despise him.
Because the process of making the Avatars is so expensive, when Tom Sully, a scientist in the Avatar program is killed on Earth, his twin brother Jake is 'drafted' by the RDA to replace him. Jake is an ex-marine paraplegic, and the idea of being able to transfer into a body with working legs was appealing. He takes the offer without any kind of research and gets thrust into the force/diplomacy tug-of-war on a planet he doesn't understand at all. Jake is recruited by Quaritch to do recon for future attacks on the NA'vi, and Jake agrees when Quaritch promises to get him working legs again.
When Jake in his Avatar body gets separated from a routine science mission, he is forced to spend the night in the hostile Pandoran jungle. He is discovered by Neytiri, a female NA'vi, who is about to shoot an arrow into him when a tiny tree spirit lands on her arrowhead convincing her to let him live. He forms a torch to fight of these hyena-like creatures, from which she ultimately has to save him. Despite his protests, she puts out his torch and within a few seconds, the whole forest around him begins to glow with beautiful bio-luminescence. When Jake is touched by a flock of the aforementioned tree spirits, Neytiri has no choice but to bring him to her father, the leader of the tribe.
Luckily for Jake, he is granted a stay and will be taught the ways of The People by Neytiri (who is not happy about being given this task). This is the point at which most feel the film becomes
Dances With Wolves (or as South Park put it,
Dances With Smurfs 
) for awhile, but there are other films that have had this theme, as well -
Little Big Man and
A Man Called Horse to name a couple - so I'm not sure how valid a criticism that is...
The rest of the story builds from here with Jake learning he'd rather be part of the NA'vi than with the RDA and eventually helps the NA'vi to defeat the humans (or Sky People). I'll deliberately leave out the specifics of he rest of the story...
And there's a further depth to some of what I have revealed, too.
