Psychonauts studio Double Fine hit with layoffs after split with Xbox

Earlier this month, the new Xbox CEO Asha Sharma initiated the big "reset" for the Microsoft gaming division she had been talking about for some time. This meant 3,200 layoffs across game development studios, major internal IP changes, and even five first-party Xbox Game Studios being spun off as independent companies or being sold. One of those studios today announced a layoffs wave of its own, affecting almost 30% of the team.

Double Fine Productions founder Tim Schafer today announced over social media that 23 members of staff have been let go. The team had been about 80 strong before this. He said the survival of the studio was the only reason this kind of decision would be made and that being independent from Microsoft means it has to have a team size that the company can sustain.

"As a small, tightly knit team, these actions are not taken lightly," said Schafer. "The people we are losing were all important. They all made an impact on our games and culture, and they will be missed."

Double Fine is responsible for iconic games like Psychonauts and Brutal Legend. Under the Xbox flag, after being acquired in 2019, it managed to push out three titles, which include Psychonauts 2 (2021), Keeper (2025), and Kiln (2026).

"We are committed to supporting each affected person as best as we can, and we thank them for their hard work and commitment to the creative spirit we cherish here at Double Fine," added Schafer.

When splitting from Microsoft, the San Francisco-based studio managed to keep all its IPs, currently released catalog, and upcoming projects intact. The studio hasn't revealed any projects for the future just yet. Double Fine isn't the only studio struggling following its independence either. Compulsion Studios, another former Xbox development team, recently announced that it is looking for new partners or work as a support studio.