This from EW.com:
“I’ve had a storyline in mind from the start — there are even scenes in Avatar that I kept in because they lead to the sequel,” Cameron says. “It just makes sense to think of it as a two or three film arc, in terms of the business plan. The CG plants and trees and creatures and the musculo-skeletal rigging of the main characters — that all takes an enormous amount of time to create. It’d be a waste not to use it again.”
No word on a time frame but it is said that Sam Worthington is confirmed to reprise his role of Jake Sully and has even emailed EW with a few plot ideas:
“Jake should have abused his avatar and be fat and unfit and demand Neyteri to get him a beer.”
Sounds like even death won't keep Avatar's main villain away from reprising his role. Stephen Lang who played Colonel Miles Quaritch had this to say:
“You think those two arrows in my chest are going to stop me from coming back?” Nothing’s over so long as they’ve got my DNA.”
The weird thing with Hollywood is that you never know what their next move will be? Cameron might choose to produce 'Avatar 2', leaving the director duties to someone he feels deserves that type of shot. This off course would open the door to other possibilities for James to explore. Probably not though. 'Avatar' is James Cameron's baby, he wont leave it till it's big and fat and can't eat anymore.