Tectonic Processes and Volcanism on Pandora

 Like Earth, Pandora has a liquid iron core, a plastic mantle, and a semirigid crust.

Unlike Earth, Pandora is a moon, not a planet. Its proximity to its planet, Polyphemus, as well as its two closest sister moons creates immense tidal heating, which greatly increases the rate at which Pandoran continents drift. This vast amount of stress causes the plates to fracture much more extensively. This yields Pandora to be covered with many small continents. With the presence of the superconductive element Unobtanium comes immense magnetic fields in which plates can collide at convergent boundaries. This collision allows large blocks of land to break off and, due to their conductivity, float thousands of meters above Pandora. 

The floating blocks of land above Pandora.

Volcanic activity is also much greater on Pandora than on Earth, with vents dotting the land and the ocean. Many of the mountains and island chains throughout Pandora are of recent volcanic activity. The superconductivity of Pandora allowed for the floating mountains to form when the planet was still primarily molten. The less dense Unobtanium would settle on top of the denser rock, where the mountain would stay afloat above the crater from which it was separated. These felsic sedimentary rock formations provide the perfect balance of gravitational pull and magnetic repulsion to allow the mountains to stay at their place in the atmosphere of Pandora.

Unobtanium, the mineral which allows the mountains formed along fault lines to float.

Sources
Avatar: An Activist Survival Guide by Maria Wilhelm