Obsidian is developing a new Fallout project with Bethesda co-development, following the cancellation of Avowed 2 and a 25% workforce reduction. The studio continues work on Grounded 2 and The Outer Worlds 2 DLC, and has denied it is at risk of closure.
Obsidian Entertainment has undergone significant restructuring in recent months. In July 2026, the studio laid off 52 employees, about a quarter of its workforce, and canceled the sequel to its fantasy RPG Avowed. Resources are now redirected to a new Fallout game, with Fallout: New Vegas director Josh Sawyer expected to lead development and Bethesda Game Studios slated to co-develop the project. The strategy shift prioritizes major franchises over original IP, though the co-development plan is not yet finalized.
Earlier reports that Obsidian was a target for closure were retracted after journalists Jason Schreier and Jez Corden denied the claim, stating Xbox plans to keep the studio. Obsidian director Brandon Adler responded to criticism by affirming that the studio's core creative spirit remains unchanged, noting that many of the same people who worked on past titles still hold key roles. Writer John Gonzalez returned to the studio in January 2025, and co-creator Tim Cain is involved in an unannounced title.
Amid the changes, Obsidian continues to ship games. Grounded 2 enters early access on PS5 on August 11, 2026, with cross-play and cross-progression across Xbox, PC, and PS5. The Outer Worlds 2 DLC is still in development, and Grounded 2 also continues. A Steam Summer Sale offered discounts on Obsidian titles including Fallout: New Vegas, The Outer Worlds 2, Avowed, Pentiment, and Grounded. Bethesda has also confirmed a new Fallout project with Obsidian as part of its broader roadmap, alongside Fallout 3 and Fallout: New Vegas remasters and a Fallout 76 prequel expansion.
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Bethesda Game Studios released a statement detailing its upcoming projects, including remastered versions of Fallout 3 and Fallout: New Vegas. The studio also confirmed a new Fallout project with Obsidian Entertainment, a prequel expansion for Fallout 76 titled 'Raven Rock', and that Fallout 5 is in pre-production. The Elder Scrolls VI remains the main development focus, using the new Creation Engine 3.
Obsidian Entertainment director Brandon Adler responded on LinkedIn to criticism that the studio has lost its identity after recent Xbox layoffs. He acknowledged the layoffs were difficult but argued that many of the same people who worked on past titles like Fallout: New Vegas and Pillars of Eternity still hold key roles. He said the studio has changed over 20 years but its core creative spirit remains unchanged.
The Steam Summer Sale on Steam includes discounts on multiple Obsidian Entertainment titles. Fallout: New Vegas is 50% off at 550 yen, and its Ultimate edition is 60% off at 879 yen. Other discounted games include The Outer Worlds 2, Avowed, Pentiment, and Grounded. The sale runs until July 10 at 2 a.m. Japan time.
Obsidian Entertainment has laid off 52 employees, about 25% of its workforce, as part of a broader Xbox restructuring. Multiple unannounced projects, including the sequel to the fantasy RPG Avowed, have been canceled. The studio is now redirecting resources toward a new game in the Fallout series, with Josh Sawyer, the director of Fallout: New Vegas, expected to lead development. Bethesda Game Studios is slated to co-develop the project, though the plan is not yet finalized. The layoffs and cancellations follow Microsoft's July 6 announcement of 4,800 company-wide cuts, with 1,600 in the Xbox division. Bloomberg reported that Avowed 2 was progressing smoothly and an announcement was expected within a year. The new strategy prioritizes major franchises, and the Fallout IP is considered a key asset. Other projects, such as downloadable content for The Outer Worlds 2 and Grounded 2, will continue. Obsidian has a deep history with the Fallout series, including the return of writer John Gonzalez in January 2025 and the involvement of co-creator Tim Cain in an unannounced title.
The Game Business reported that Obsidian Entertainment was a target for closure in Xbox restructuring, but the article was corrected and apologized for after journalists Jason Schreier and Jez Corden denied the claim, stating Xbox plans to keep the studio.
Obsidian Entertainment announced that Grounded 2 will launch early access on PS5 starting August 11, 2026, with cross-play and cross-progression across Xbox, PC, and PS5. Game director Chris Parker detailed the new Buggy mount system, which functions as a combat companion and inventory carrier, and confirmed an amphibious Buggy type coming in the August Into the Abyss update.