Double Fine, the Xbox-owned studio behind Psychonauts 2, Keeper and Kiln, has laid off 23 developers just weeks after Microsoft's Xbox division divested the company as part of a wider restructuring. Founder Tim Schafer said the cuts were necessary for the studio's survival as it adapts to becoming a self-sustaining independent company again, describing the decision as painful for a small, close-knit team. It is the first of four studios recently spun off by Xbox to publicly announce layoffs, highlighting the difficult conditions facing mid-size developers across the games industry.

Double Fine, founded in 2000 by former LucasArts staff, built its reputation with quirky titles including Psychonauts, Brutal Legend and Broken Age before Xbox acquired it in 2019. According to Bloomberg's Jason Schreier, who first reported the layoffs, the studio employed around 90 people at the time of the cuts. Xbox CEO Asha Sharma announced the split from Double Fine, Compulsion Games, Ninja Theory and Undead Labs earlier this year, saying it was "neither possible nor desirable to own every great independent studio", and Double Fine said it remains "committed to supporting each affected person as best as we can."