It sounds like your preview is defaulting to half resolution. Just set the preview resolution to Full.
To clarify the process:
Create new composition at 1920x1080 resolution.
Drag footage into comp.
Does the footage fit properly into the comp?
Thanks but that doesn't seem to solve the problem. When I select the footage in the Project Panel, at the top of the project panel it says that the footage is 960x540. If I do the same thing in Premiere with the same footage it is recongized as 1920x1080.
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Is this a QuickTime (.mov) file, and are you on Mac OS? If so, use Get Info to see what the characteristics of the movie are. Then open the movie in QuickTime Player and see what the characteristics are.
QuickTime movies can have two different sets of pixel dimensions: the "current" size and the "normal" size. If QuickTime Pro (or another application) has saved the file with a "current" size other than the full size, then After Effects can get confused. When I've seen this before, I've opened the file in QuickTime Pro, set the view to Actual Size, and then resaved the movie.
Of course, you may be seeing soemthing else. This is just my first guess based on the limited information given so far.
I have a feeling it may be something like this. It is .mov however, I am on Windows 7 and I do not have Quicktime pro. When I get properties in Windows explorer in reads as 1920x1080.
When I open the file in quickrime it is indeed at half resolution, I can change the settings in player but I can't save. Can I fix this without purchasing Quicktime Pro?
This is a known problem with some QT and AVI formats. When you view the file and the player is set to half resolution (or some other resolution) and you close the file, a meta tag of sorts is added to the file that gives the playback size. AE reads that tag and incorrectly assumes that the last viewed frame size is the frame size of the file. In some cases all you have to do is to open the file in QT, change the viewing options to full screen, than close the file. In other cases you have to have QT Pro installed so you can actually save the file.
I've found that sometimes all you have to do is to scale up the footage in AE because the pixels are all still there and scaling up the mis interpreted footage does not cause a quality loss. You might want to give that a try. Just scale up your footage to 200% and see what it looks like.