A recent and profound innovation in special effects has been the development of computer generated imagery, or CGI, which has changed nearly every aspect of motion picture special effects. Digital compositing allows far more control and creative freedom than optical compositing, and does not degrade the image like analogue (optical) processes. Digital imagery has enabled technicians to create detailed models, matte "paintings," and even fully realized characters with the malleability of computer software.

The most spectacular use of CGI has been the creation of photographically realistic images of fantasy creations. Images could be created in a computer using the techniques of animated cartoons or model animation. In 1993, stop-motion animators working on the realistic dinosaurs of Steven Spielberg's Jurassic Park were retrained in the use of computer input devices. By 1995, films such as Toy Story underscored that the distinction between live-action films and animated films was no longer clear. Other landmark examples include a character made up of broken pieces of a stained-glass window in Young Sherlock Holmes, a shapeshifting character in Willow, a tentacle of water in The Abyss, the T-1000 Terminator in Terminator 2: Judgment Day, hordes of armies of robots and fantastic creatures in the Star Wars prequel trilogy and The Lord of the Rings trilogy and the planet Pandora in Avatar.