Individuals have a tendency to treat computers as social entities and exhibit social behaviours towards a computer system, according to the Social Response Theory. AI powered computer systems such as chatbot and virtual assistant have been widely used in various fields such as e-commerce, social media, healthcare, education, entertainment etc. With the advent of Head Mounted Devices (HMDs), the integration of AI into immersive virtual environment (VEs) has gained significant attention by both industry and academia. It also provides another opportunity to enable intelligent interaction through AI avatars or characters in VEs in order to enhance user experience and further impact on human well-being. In this chapter, we introduce the AI adoption in VEs especially with a focus on virtual avatars and characters, and we shed light on their interaction modalities design. We also provide insights about users’ attitude towards AI and the impact of AI interactions in VEs on human well-being. The limitations and future directions of this research fields are discussed.