Double Fine Cuts 23 Staff After Xbox Spin-Off
The Psychonauts 2 studio says the layoffs were necessary for survival following its return to independent status.
Double Fine Productions laid off 23 employees on July 28, 2026, about 25-26% of its workforce, as the studio transitioned to independence after separating from Xbox.
Independence Comes at a Cost
The layoffs came roughly three weeks after Xbox announced a major restructuring on July 6, 2026. Under CEO Asha Sharma, the gaming division eliminated 3,200 positions and spun off several studios, including Double Fine and Compulsion Games. Both retained their intellectual property, game catalogs, and development runway.
Double Fine employed roughly 90 people before the cuts, leaving approximately 67 staff members.
"Only the survival of our studio would ever make us consider such a painful action," said Tim Schafer, Double Fine's studio head, according to Rock Paper Shotgun.
Xbox Confirms Separation
An Xbox spokesperson told Kotaku that "Double Fine is now fully independent and manages its own operations." The statement confirms the studio no longer falls under Microsoft's direct management.
The layoffs illustrate the financial realities facing studios transitioning from corporate ownership to independence. While Double Fine secured its IP and existing projects, losing Xbox's financial backing required immediate downsizing to reach a sustainable operating size.
Broader Xbox Restructuring
The July 6 announcement by CEO Asha Sharma reshaped Xbox's first-party development landscape. Beyond the 3,200 job cuts, the restructuring affected multiple studios across the gaming division.
Independence offers creative freedom but removes the financial safety net of a major publisher. Studios must now secure their own funding, manage operations, and compete for resources without corporate backing.
What's Next for Double Fine
Despite the layoffs, Double Fine retained the assets needed to continue development on future projects. The studio's catalog includes critically acclaimed titles such as Psychonauts 2, Broken Age, and Grim Fandango Remastered.
The studio has not announced specific upcoming projects or how the reduced team size will affect development timelines. Analysts suggest the leaner operation may focus on smaller-scale productions or seek external publishing partnerships to fund larger titles.
The layoffs mark a sobering chapter in Double Fine's history, which has included both independent periods and tenure under Microsoft's ownership since 2019.