Obsidian Entertainment Reportedly Faces Major Layoffs Amid Xbox Restructuring
Obsidian Entertainment, the acclaimed studio known for Fallout: New Vegas, The Outer Worlds, Avowed, Grounded, and Pentiment, has reportedly been hit hard by Microsoft’s continuing restructuring of its Xbox division.
A new report claims that around 60 to 70 employees are being laid off at the studio, equal to roughly 25% of Obsidian’s workforce. While Microsoft did not publicly name Obsidian when announcing its latest round of Xbox-related job cuts, sources familiar with the situation say the developer is among the first-party teams significantly affected by the companywide changes.
The layoffs are said to impact nearly every part of the studio, including art, design, writing, production, programming, recruitment, and quality assurance. Some longtime employees who have worked at Obsidian for more than 10 years are reportedly among those leaving. The cuts are also said to include senior-level staff, including an art director connected to The Outer Worlds, as well as the studio’s only recruiter.
Microsoft previously confirmed that around 3,200 jobs are expected to be eliminated as part of its broader Xbox restructuring. According to the latest information, only about half of those cuts have taken effect so far, with more reductions expected over the next year.
Obsidian has reportedly already experienced most of its layoffs during this first wave, though additional roles may still be removed later in 2026. That leaves uncertainty around the studio’s long-term plans, especially after several high-profile releases and ongoing projects.
For now, development on Grounded 2 is reportedly continuing as planned. Obsidian is also expected to support The Outer Worlds 2 with post-launch downloadable content. However, what comes next for the studio beyond those projects is currently unclear.
An internal all-hands meeting is reportedly expected soon, where leadership will discuss the next steps and provide more clarity to remaining employees about the studio’s future.
The news comes during a difficult period for the games industry, as major publishers and studios continue to reduce staff, cancel projects, and reorganize development teams. Obsidian has long been regarded as one of Xbox’s most respected RPG-focused studios, making these reported layoffs a major moment for both the developer and fans of its games.
