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They stare at females boobs and get erect so yes they have a penis

In the Activist's Survival Guide by Wilhelm nd Mathison [pg. 31] it is said that "The mechanics of reproduction [of Na'vi] are similar to that of humans and other Terran mammals". So, it would seem that male Na'vi do have a penis. It is however questionable if it just 'hangs there', like with Humans or not.

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