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Double Fine, best known for creating the 2005 platform game Psychonauts, has laid off 25.6% of its staff three weeks after Xbox’s massive restructuring efforts were revealed.

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The studio announced the layoffs on July 28, 2026, confirming that this downsizing was a direct result of becoming an independent company after Xbox unloaded them as part of its own restructuring earlier this month.

“As a small, tightly-knit team, these actions are not taken lightly,” a statement from Double Fine reads. “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 released a statement about the layoffs, confirming that the studio fully returned to its independent status earlier this week, keeping 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.

As revealed by Jason Schreier, Double Fine is a roughly 90-person team, meaning that around 25.5% of staff was cut as the studio shrinks back to a manageable size to match its independent status.

Double Fine’s self-management, as well as that of Compulsion Games (We Happy Few, South of Midnight), was revealed earlier this month. Both studios got to keep their IPs in the transition, with each thanking fans for their continued support and promising to share updates on future projects at a later date.

This isn’t the first time either development house has been independent; in fact, both were founded as indie studios at the start, with Double Fine famously founded by LucasArts alum Tim Schafer in 2002.

On July 6, 2026, Xbox CEO Asha Sharma sent out an internal email to staff announcing the most “significant” restructuring in the company’s history that would impact thousands of employees. 3,200 were on the chopping block, with 1,600 laid off that day. As noted by IGN’s Wesley Yin-Poole, this means about one-fifth of its staff will be impacted, as well as numerous studios Xbox purchased during its infamous buying spree over the last 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 in her email. “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.”

Virginia (she/her) is IGN’s News Editor. With ten years of experience reporting on games and entertainment, she’s got a storied background in the fighting game community, influencer news, and viral online trends. Find her on Twitter at @TheeMissGlaze.

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