Double Fine, the renowned video game development studio behind the cult classic ‘Psychonauts,’ has announced a significant staff reduction following its transition to an independent company. The studio, which was previously a part of Xbox’s restructuring efforts, has laid off approximately 25.6% of its staff in a move aimed at downsizing to a sustainable size.
The news comes just three weeks after Xbox’s massive restructuring efforts were revealed, which impacted thousands of employees across the company. Double Fine’s decision to downsize was confirmed on July 28, 2026, with the studio stating that the layoffs were a direct result of becoming an independent company.
According to a statement from Double Fine, the studio’s leadership understands the gravity of the situation and acknowledges the impact on the affected employees. ‘As a small, tightly-knit team, these actions are not taken lightly,’ the statement reads. ‘Only the survival of our studio would ever make us consider such a painful action. Our transition to becoming an independent company also means becoming a size that we can sustain.’
The statement continued, ‘The people we are losing were all important. They all made an impact on our games and culture, and they will be missed. We are committed to supporting each affected person as best as we can, and we thank them for their hard work and commitment to the creative spirit we cherish here at Double Fine.’
Xbox also released a statement regarding the layoffs, confirming that Double Fine has fully returned to its independent status. The statement reads, ‘As they begin their next chapter as an independent studio, we look forward to seeing what they create next. Double Fine is now fully independent and manages its own operations.’
Double Fine’s self-management, as well as that of Compulsion Games, was revealed earlier this month. Both studios got to keep their IPs in the transition, with each thanking fans for their continued support and promising to share updates on future projects at a later date. Double Fine’s transition to an independent studio marks a significant shift in its business model, as the studio now has full control over its operations and decision-making processes.
As revealed by Jason Schreier, Double Fine is a roughly 90-person team, meaning that around 25.5% of staff was cut as the studio shrinks back to a manageable size to match its independent status. This downsizing is a strategic move aimed at ensuring the long-term sustainability of the studio, which will now be able to operate independently without the need for external support.
This is not the first time that Double Fine has been an independent studio; in fact, the company was founded as an indie studio in 2002 by LucasArts alum Tim Schafer. Double Fine’s history dates back to the early 2000s, and the studio has since become a renowned name in the gaming industry.
The news of Double Fine’s layoffs has sent shockwaves through the gaming community, with many fans and industry professionals expressing their support for the affected employees. The transition to an independent status marks a new chapter for Double Fine, and the studio’s future plans and projects remain to be seen.
