Undead Labs splits from Xbox as State of Decay 3 nears finish

Undead Labs has bought back its independence from Xbox and left the group, with its zombie survival sequel State of Decay 3 still in development.

Studio boss Phillip Holt told Eurogamer the game is in alpha, an early playable version still being shaped, and is now in testing with a closed group of players. He said the team is "pretty close to finishing". The scope is staying put.

Holt said the studio has "got to make some changes" to the game because a significant number of people left in layoffs. He added that Undead Labs is not dramatically cutting back what the game is trying to do. Holt also said the studio had been "irresponsibly transparent" in preparing staff for the layoffs, according to Game Developer.

Microsoft acquired Undead Labs in 2018. Holt said he announced State of Decay 3 early, with its original reveal in 2020, because he worried the studio could be "swallowed up or divested" as Microsoft kept buying other companies.

The team stayed small from around 2020. Full development did not pick up until 2022 or 2023, Holt said. No new game shipped in those eight years as an Xbox studio, though the team released 38 updates for State of Decay 2, as detailed in The Game Business.

There is already playable evidence. GameSpot tried combat, teamwork and exploration at Gamescom 2026 and played the alpha version, with the footage flagged as subject to change. Its video, titled "State of Decay 3's Gameplay Shows Off Combat, Team Work and More", was published on 28 August 2026.

For players waiting since that first teaser, this means the wait continues but the direction is clearer. An independent studio. A game in player testing. A finish line described as close, not distant.