Microsoft has assigned Obsidian Entertainment, a game studio it owns, to develop a new Fallout game. The decision comes as part of a major cost-cutting effort that includes eliminating 3,200 jobs across Xbox, Microsoft's gaming division. Josh Sawyer, a veteran designer who worked on Fallout: New Vegas, will lead the project.

Fallout hasn't been part of Microsoft's own game releases for seven years. The last major game was Fallout 76 in 2018. The franchise has become much more popular in recent years thanks to an Amazon television show.

Before this assignment, Sawyer was working on a different fantasy game at Obsidian that wasn't part of any major franchise. That project is now being redirected into Fallout instead. Microsoft owns the Fallout name outright—it bought the rights when it acquired another company called Bethesda in 2020—so it can move its own employees onto the franchise without paying licensing fees.

To make room for Fallout, Obsidian has canceled other games it was developing. Most notably, it scrapped a sequel to Avowed, a fantasy game that came out in 2025. A Bloomberg report suggested this sequel was actually going well—meaning Microsoft stopped it for money reasons, not because it was struggling. The company is keeping Grounded 2 (currently in testing with players) and continuing to add content to The Outer Worlds 2.

About one in four people at Obsidian lost their jobs. The week of July 8, 2026, Microsoft laid off roughly 25 percent of the studio's staff. This is part of a much larger wave: 1,600 layoffs happened first, with Microsoft committing to cut 3,200 total jobs across its fiscal year.

Why make this move. Microsoft is betting that a well-known game series with millions of existing fans is safer to invest in than a new sequel to something that only came out recently, even if that newer game was doing fine. It's a common strategy in the entertainment industry: focus your money on proven franchises rather than new risks.

Sawyer's appointment carries real weight with longtime Fallout fans. He designed Fallout: New Vegas more than a decade ago, and many players still call it the best Fallout game ever made for its story and the way its world felt alive and full of choices. That history will matter to people who care about where this new game goes.

Large game companies have been cutting staff for several years now, even while they continue releasing new games. Microsoft's public explanation—a "reset" focused on "higher priority projects"—is the kind of language companies typically use when restructuring. It doesn't say much about which other studios or games at Xbox might be affected.

We don't yet know what happened to the people who were laid off, or whether any found work at other parts of Microsoft or other game companies. When big game companies cancel popular games that fans were looking forward to, the backlash can be severe. Avowed had built a real fan following since it launched in 2025. Microsoft also hasn't said when the new Fallout game will come out, or what technology it will use to build it.