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The director planned to create photo-realistic computer-generated characters by using motion capture animation technology, on which he had been doing work for the past 14 months. Unlike previous performance capture systems, where the digital environment is added after the actors' motions have been captured, Cameron's new virtual camera allows him to observe directly on a monitor how the actors' virtual counterparts interact with the movie's digital world in real time and adjust and direct the scenes just as if shooting live action; "It’s like a big, powerful game engine. If I want to fly through space, or change my perspective, I can. I can turn the whole scene into a living miniature and go through it on a 50 to 1 scale."[49] Cameron planned to continue developing the special effects for Avatar, which he hoped would be released in summer 2009. He also gave fellow directors Steven Spielberg and Peter Jackson a chance to test the new technology.[50] Spielberg and George Lucas were also able to visit the set to watch Cameron direct with the equipment.

Other technological innovations include a performance-capture stage, called The Volume, which is six times larger than previously used and an improved method of capturing facial expressions. The tool is a small individually made skull cap with a tiny camera attached to it, located in front of the actors' face which collects information about their facial expressions and eyes, which is then transmitted to the computers. This way, Cameron intends to transfer about 95% of the actors' performances to their digital counterparts. Besides a real time virtual world, the team is also experimenting with a way of letting computer generated characters interact with real actors on a real, live-action set while shooting live action.
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