Double Fine Productions has reduced its workforce by 25% following its full separation from Xbox Game Studios earlier this week. The layoffs, which affect 23 people, come as Tim Schafer's studio transitions to full independence after years under Microsoft's gaming umbrella.
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"As a small, tightly-knit team, these actions are not taken lightly. Only the survival of our studio would ever make us consider such a painful action," Schafer said in a statement.
Schafer added: "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."
The studio, best known for Psychonauts 2, Keeper, and Kiln during its time under Xbox Game Studios, is now operating as a fully independent entity. The separation and resulting cuts are part of the broader restructuring across Microsoft's gaming division, which has seen significant upheaval in recent months.
Double Fine's independence marks the end of a chapter that began in 2019 when Microsoft acquired the studio as part of its Xbox Game Studios expansion. Under Xbox ownership, the studio shipped Psychonauts 2 to critical acclaim and released two additional titles. The transition to independence now requires the studio to operate without the financial safety net of a major publisher.
The layoffs at Double Fine are part of a wider pattern across Xbox Game Studios. Microsoft has been streamlining its gaming operations, with thousands of positions eliminated across the division. Arkane, another studio under the Xbox umbrella, is also undergoing consultation proceedings in France to review potential strategic options.
For Double Fine, the path forward as an independent studio will depend on its ability to secure funding and maintain its creative identity without the backing of a tech giant. Schafer's statement emphasized the studio's commitment to its creative spirit, but the loss of experienced staff will inevitably shape whatever comes next.
The gaming industry has seen a wave of studio separations and layoffs in 2026, with publishers and platform holders reassessing their portfolios after years of aggressive acquisition. Double Fine's story reflects the human cost of those strategic shifts, even for studios with beloved franchises and proven creative leadership.
