Microsoft's latest wave of Xbox layoffs has reached Obsidian Entertainment, the studio behind The Outer Worlds 2, which has reportedly lost around 25% of its staff. The cuts form part of a broader reduction announced on Monday that will see 3,200 Xbox employees let go by the end of Microsoft's fiscal year, including 1,600 in this latest round. The move underlines the scale of upheaval across Microsoft's gaming divisions, with studios such as Bethesda and the Elder Scrolls Online team also said to have been badly affected.

According to a Kotaku report, most Obsidian staff were let go on Monday, with some told they would leave at a later date during the fiscal year, and many of those affected were senior employees, including an art director of 21 years. Remaining staff have reportedly not been told how to proceed given the scale of the cuts, though the studio will continue work on Grounded 2, which entered early access last summer, and on DLC for The Outer Worlds 2, with a staff meeting expected on Tuesday. Obsidian has been notably prolific since Microsoft acquired it in 2018, releasing six games in total and three in 2025 alone (Avowed, Grounded 2 and The Outer Worlds 2); however, Avowed and The Outer Worlds 2 undersold against expectations, and there are currently no plans for a third Outer Worlds game.