Double Fine lays off staff after splitting from Xbox

Double Fine Productions, the studio behind Psychonauts 2, laid off an undisclosed number of employees on July 28, 2026, as it separates from Microsoft's Xbox division. The cuts come as part of a broader divestiture process in which the studio is transitioning to independent ownership.

The layoffs affect staff at the San Francisco-based developer, though the exact number of roles eliminated has not been publicly disclosed. According to the report, the reductions are tied directly to the studio's departure from Xbox Game Studios, which acquired Double Fine in 2019.

The move marks a significant shift for Double Fine, known for its creative and critically acclaimed titles. The divestiture and accompanying layoffs raise questions about the studio's future project pipeline and its ability to maintain the scale of development seen under Microsoft's backing.

The report, published by Kotaku on July 28, 2026, states that the layoffs occurred on that same day. No specific figures regarding the number of affected employees or the financial terms of the divestiture were provided in the source.

Double Fine joined Xbox Game Studios in 2019, a move that founder Tim Schafer said would provide stability and resources. Under Microsoft, the studio released Psychonauts 2 in 2021 to strong reviews. The reasons for the divestiture have not been detailed in the report.

The report does not specify what will happen to ongoing projects at Double Fine or how the transition to independence will affect the studio's operations. Further details on the divestiture timeline and any additional impacts remain unclear.