Xbox Comments on Double Fine Layoffs as Studio Cuts 25% of Staff Following Return to Independence

Double Fine, the studio behind the 2005 platformer Psychonauts, has laid off 25.6% of its workforce three weeks after Microsoft's massive restructuring became public. The layoffs, announced on July 28, 2026, are a direct result of the studio becoming independent again after Xbox offloaded them as part of its own restructuring earlier this month.

"As a small, tightly-knit team, these actions are not taken lightly," Double Fine said in a statement. "Only the survival of our studio would ever make us consider such a painful action. Our transition to becoming an independent company also means becoming a size that we can sustain. The people we are losing were all important. They all made an impact on our games and culture, and they will be missed. 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."

Xbox also issued a statement, confirming that Double Fine had fully returned to independent status earlier this week, retaining "their IP, catalog, and runway for their next games."

"As they begin their next chapter as an independent studio, we look forward to seeing what they create next. Double Fine is now fully independent and manages its own operations," a spokesperson said to Kotaku.

According to Jason Schreier, Double Fine has roughly 90 employees, meaning about 23 people were let go as the studio shrinks to a sustainable size for its independent status.

Double Fine's separation from Xbox, along with Compulsion Games (We Happy Few, South of Midnight), was revealed earlier this month. Both studios kept their IPs in the transition and thanked fans for their support, promising updates on future projects later.

This isn't the first time either studio has been independent; both were founded as indie studios, with Double Fine famously established by LucasArts alum Tim Schafer in 2002.

On July 6, 2026, Xbox CEO Asha Sharma sent an internal email announcing the "most significant" restructuring in the company's history, impacting thousands of employees. Of the 3,200 jobs on the line, 1,600 were cut that day. As noted by IGN's Wesley Yin-Poole, this means about one-fifth of Xbox's staff will be affected, along with numerous studios acquired during Xbox's buying spree over the past five years.

"I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect," Sharma wrote. "I know we can achieve this goal. XBOX has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027. History is full of companies that mistake longevity for inevitability. We will not be one of them."