Double Fine Productions, the studio behind Psychonauts 2, has laid off 23 employees following its recent exit from Xbox Game Studios. Studio head Tim Schafer said the cuts were necessary for the studio's survival as it transitions back to being an independent company, describing the move as painful but required to reach a sustainable size. The layoffs come roughly a month after Xbox announced it was cutting around 3,200 jobs across its division and parting ways with four studios, of which Double Fine was one.

According to Bloomberg's Jason Schreier, Double Fine had around 90 staff before the cuts, meaning the layoffs affect roughly a quarter of the workforce. Xbox confirmed Double Fine fully returned to independent management this week, retaining its intellectual property, back catalogue and funding runway for future games, though the exact length of that runway remains unclear. While under Xbox, the studio released Psychonauts 2, Keeper and the multiplayer game Kiln, and Schafer said the studio remains committed to supporting those affected.