Worthington, who won the Australian Film Institute's best lead actor award in 2004 for Somersault, will play an ex-marine who embarks on a deep space mission and ends up leading an alien race in a battle for survival.
Zoe Saldana, whose credits include The Terminal and Pirates Of The Caribbean: Curse Of The Black Pearl, will play Worthington's love interest. Both actors have signed on for possible future installments, and further casting news will be announced shortly.
The project is being lined up for a wide digital 3D release in summer 2009, by which time distributor Fox Filmed Entertainment is banking that the widespread installation of digital projectors will have rendered such a launch a viable proposition.
Peter Jackson's New Zealand-based Weta Digital will work on CG effects, one of several key elements in Cameron's vision that include a revolutionary motion capture and a virtual camera system.
Cameron's last stint as the director of a narrative feature was the all-time box office champion Titanic, which was released by Fox in international territories. The relationship between film-maker and studio has been immensely lucrative, and previous collaborations include Aliens, The Abyss, and True Lies.
'For me, as a lifelong fan of science fiction and action, Avatar is a dream project,' Cameron, who is producing with Jon Landau, said. 'We're creating an entire world, a complete ecosystem of phantasmagorical plants and creatures, and a native people with a rich culture and language.
'The story is both epic and emotional. The two things that make this film even possible are pioneering advances in CG effects and performance capture, as well as my 22-year relationship with Fox, since only with great trust can you operate so close to the cutting edge.'
'Every year, our business makes hundreds of films, most of which come and go,' Fox Filmed Entertainment co-chairmen Jim Gianopulos and Tom Rothman said. 'But a Jim Cameron film is different.' They added that Avatar heralded 'a seismic change in the movie going experience.'
Principal photography will take place in and around Los Angeles and in New Zealand. Live action will be shot using the proprietary FUSION digital 3D camera system developed by Cameron and Vince Pace.