Double Fine studio, from Psychonauts, lays off 25% of the team after Xbox restructuring
Double Fine, known for developing the platform game Psychonauts, announced the layoff of 25.6% of its team. The cuts occurred three weeks after a broad restructuring promoted by Xbox, which culminated in the studio’s autonomy.
The layoffs were confirmed on July 28, 2026, and are a direct result of Double Fine’s transition to an independent company. Xbox had separated the studio from its operations as part of an internal reorganization earlier that same month.
More on this story: Creator of the Psychonauts franchise fires a quarter of its staff as it leaves the Xbox umbrella
In an official statement, Double Fine expressed the difficulty of the decision: “As a small, close-knit team, we do not make these decisions lightly. Only the survival of our studio would lead us to consider such a painful step. Our transition to an independent company also means adjusting our size to a level we can sustain. The people we are losing were all important. They have all left their mark on our games and our culture, and will be greatly missed. We are committed to supporting each person affected in any way we can, and are grateful for their hard work and commitment to the creative spirit they we value so much here at Double Fine.”
Xbox also spoke out about the layoffs, confirming that Double Fine returned to operating completely independently earlier this week, maintaining all of its intellectual property (IP) rights, its game catalog and the content of its upcoming projects.
An Xbox spokesperson stated that the company is looking forward to following the future creations of Double Fine, which is now “completely independent and manages its own operations.”
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Information released by Jason Schreier indicates that Double Fine had around 90 employees, which means that approximately 25.5% of the workforce was reduced. This measure aims to adapt the studio’s structure to its new status as an independent and self-managed company.
The self-management model adopted by Double Fine, similar to that of Compulsion Games, responsible for titles such as We Happy Few and South of Midnight, was announced at the beginning of the month. Both studios maintained ownership of their franchises during the transition, thanking fans for their support and promising to share news about future projects soon.
This is not the first independent experience for either developer. Both were originally founded as independent studios, with Double Fine having been created in 2002 by Tim Schafer, a former member of LucasArts.
The most “significant” restructuring in Xbox history was communicated internally on July 6, 2026, via an email from CEO Asha Sharma. The measure provided for cuts that would affect thousands of employees, with 3,200 jobs at risk and 1,600 layoffs confirmed on the same day of the announcement.
