Yes, there will be an Avatar prequel
It's obviously going to be a while until we see another Avatar movie, but the film should absolutely be worth the wait.
James Cameron raised the bar extremely high and cleared the hurtle, delivering a movie that took sci-fi and 3D to a whole new level that probably won't be surpassed again until the sequel.
In fact, this year Cameron told the New York Times he only wants to be in the Avatar business, and making the sequels should indeed be a great way to fill up much of the following decade. He also told the Times that the second Avatar should probably be in theaters after 2015, the third movie sometime after that, and he also said back in July that talk of a fourth movie was "premature" although he "hasn't ruled it out."
Now Cameron has told MTV that the fourth Avatar movie will be a prequel that will deal with the colonization of the planet Pandora before the first film. Collider reports that the scripts for the next two Avatars are being worked on right now, and Cameron said, "Basically it goes back to the early expeditions of Pandora, and kind of what went wrong with the humans and the Na'vi and what that was like to be an explorer living in that world."
Cameron continued, "Because when we drop in, even in the first film in Avatar 1, as it will be known in the future, we're dropping into a process that's 35 years in to a whole colonization. That will complete an arc and if that leads into more, we'll start, not imitating Star Wars, but it's a logical thing to do because we'll have completed the thematic arc by the end of three. The only thing left to do is go back to see what it was like on those first expeditions and create some new characters that become legacy characters in later films."
Now that the first Avatar laid the groundwork, Cameron said for the sequels, "We've spent two years reining the whole pipeline. It was a hideously complex process to make that film, but we don't want it to be done in the same prototypical way as the first one, we want it to be a much smoother workflow just for creativity reasons."
Cameron's producer Jon Landau recently told Collider the scripts for Avatar "are pretty far along. We have a team of people already working on the film at Manhattan Beach Studios. We've been working with [Peter Jackson's] Weta Digital on technologies." In fact, as The New York Times also reported, Cameron recently bought 2,500 acres of farm land in New Zealand, which he paid $16 million for, and it's fifteen minutes away (by helicopter) from Peter Jackson's studio.