I was wondering about this as I saw Bijou slip from a high perch and fall to the ground, landing perfectly on his feet.
Apparently there are several mechanisms they utilize to regain balance and orientation. Here is some information and a video I came across about this:
The cat determines which way is up and rotates the head until he is looking downward.
He brings the front legs up close to the face, in order to facilitate rotating the front part of his body.
He twists the upper part of the spine to bring the front half of his body around in line with the head.
He bends his hind legs so that all four limbs are ready for touchdown and, as this happens, he twists the rear half of his body to catch up with the front.However, whether or not a cat lands on his feet depends on several factors, including the distance he falls and the surface on which he falls.
Righting Reflex
Cats have the ability to right themselves in midair thanks to the vestibular apparatus. This is a tiny fluid-filled organ housed deep in their inner ear that is responsible for their remarkable balance. It is composed of tiny chambers and canals lined with millions of sensitive hairs and filled with fluid and minute floating crystals.
When cats move, the fluid shifts, giving readings on the body’s position – similar to the instrument in an airplane called the “artificial horizon” that tells the pilot the position of the plane’s wings in relation to the horizon.When a cat falls, the vestibular apparatus becomes active and helps the cat register which way is up. This allows the cat to right himself in midair by adjusting the orientation of the body.
The righting reflex appears in a kitten at three to four weeks and is perfected by seven weeks. Here’s a video.