One by one, the tribal leaders of the Brazilian Xingu took to their feet, wearing yellow and red feather headdresses and clutching thick wooden clubs and spears. Having travelled for days to reach the gathering in the isolated village of Mrotidjam, the Xikrin Kayapó elders stepped forward to address their visitor, a man they knew simply as Camerón.

"If they build this dam, our children will die," said one, his eyes painted a fiery red with seeds from the urucum tree. "There will be no more fish, no more hunting," another told the outsider. "I want my grandchildren to live in peace," said a third. "The dam will take that away."

Sitting before them on a wooden schoolroom chair, the guest, better known outside the rainforest as Hollywood player and director of the blockbuster 3D film Avatar, James Cameron, listened intently before addressing his hosts. "We're here to listen to what you are saying, to hear your concerns and, because I am a film-maker, to share this with the outside world," he said. "We're just here to help in any way we can."

Sitting with him as he spoke were Sigourney Weaver and Joel David Moore, who starred in Avatar, which charts the fight of the fictitious Na'vi people against outside attempts to pillage their resources on the planet Pandora.

Until last month Cameron had never been to the Brazilian Amazon, home to the world's greatest tropical rainforest. Now, however, he has become the figurehead of an international campaign against Amazon destruction and specifically the multibillion-dollar Belo Monte hydroelectric dam project, which many of the Xingu region's indigenous residents believe will wreak havoc in communities, flooding land in some places, drying up rivers in others and triggering an influx of workers, prostitution and disease.

It seems Cameron has found his own Pandora, a situation, as he said, "where a real-life Avatar confrontation is in progress". Now he plans to shoot a 3D "experiential" documentary about the plight of the region's people and their battle against Belo Monte.

"We've got a bit of a spotlight on us right now to raise awareness in certain key areas… and I think that is important," Cameron, who is working in Brazil alongside the US-based NGO Amazon Watch, told the Observer last week during his most recent trip deep into the rainforest, where he travelled for more than 10 hours by speedboat to meet dozens of angry shamans who are fighting renewed plans to build the dam.

"They [the indigenous leaders] came to us and said, 'Look, we have been fighting this [dam] for 20 years and we are not succeeding. They [the authorities] are just steamrollering over us, they have broken their promises and in any way that you can help, please help us.' At that point it sort of becomes personal. It's not a bunch of environmental impact studies. It's personal," said Cameron.

The dam on the Xingu river would cost an estimated £7bn and be the third biggest of its kind. The Brazilian government has described the project as a "gift from God" and a key ingredient in attempts to boost the country's economy. But environmentalists and many indigenous leaders believe the dam is another step towards the destruction of the rainforest and its traditional peoples.

"We believe that Belo Monte is just the beginning," said Sheila Juruna, an indigenous leader from the Xingu region who has been involved in Cameron's two recent visits to Brazil. "If we let them do this they will end up… killing off Brazil's Indians once and for all."

Cameron said witnessing indigenous ceremonies and meetings in the Amazon had made him reflect on the plight of the North American Indians and inspired him to attempt to give the "global consciousness… a heads up".

"I felt like I was 130 years back in time watching what the Lakota Sioux might have been saying at a point when they were being pushed and they were being killed and they were being asked to displace and they were being given some form of compensation," he said. "This was a driving force for me in the writing of Avatar – I couldn't help but think that if they [the Lakota Sioux] had had a time-window and they could see the future… and they could see their kids committing suicide at the highest suicide rates in the nation… because they were hopeless and they were a dead-end society – which is what is happening now – they would have fought a lot harder."

Not all Brazilians have taken kindly to Cameron's engagement with the indigenous cause. "This type of intervention strengthens the belief… that the aim of the ecological movement is simply to maintain the status quo of the world economy," one columnist wrote in the Monitor Mercantil newspaper last week, adding that "Cameron's colonialist message" was an attempt to "exterminate the future of Brazil". Brazil's outgoing energy minister, Edison Lobão, told the Record news channel that Cameron understood "nothing about electric energy". "We don't try to get involved in cinema, because we know nothing about it," he said. "I wouldn't try to make Avatar, would I? It would be horrific."

But in many of the Xingu's indigenous villages, the man they call Camerón has been an instant hit. "It's very important that he has come here," said Mokuka Kayapó, a leader from the Moikarako village, after meeting the Canadian director. "Now he must invite us to go where he lives to tell the people our truth, in our language."

Cameron also defends himself from accusations of meddling. "I think one of the biggest questions is: 'What is your standing? What are you gringos doing here? What gives you the right to tell us how to run things within our country? It's our problem, it's not your problem.' I get all that," he said. "But North America is Brazil's future. We can come to Brazil from the future and say: 'Don't do this.'

"If this goes forward then every other hydroelectric project in the Amazon basin gets a blank cheque. It's now a global issue. The Amazon rainforest is so big and so powerful a piece of the overall climate picture that its destruction will affect everyone."

Last week there appeared to have been a temporary stay of execution for those opposed to the dam after a judge suspended the Belo Monte bidding process, due to begin on Tuesday, arguing that the project could cause "irreparable [environmental] damage". But by Friday the decision had been overturned, paving the way for the dam's construction.

Before bidding farewell to the Kayapó elders, Cameron made a speech. "The rivers and the forests have a moral right to continue to exist as they have for thousands of years," he said. "And I believe that you have a moral right to exist as you have for thousands of years."

Inside the wooden hut, at the centre of the Mrotidjam village, the leaders responded with applause. Outside, by the riverbank, vultures hovered menacingly in a cobalt sky. "Probably the defining battle in human history is happening during our lifetime," said Cameron. "But the Chinese curse says, 'May you live in interesting times', [and] it's a curse, it's not a blessing, because if we fuck this up we've fucked it up for all of time."