Undead Labs confirmed on September 22, 2026 that it has gone through a significant round of layoffs, sharing the news in a LinkedIn post published the same day the State of Decay studio completed its separation from Xbox, as reported by Push Square. The studio did not disclose how many employees were affected, only acknowledging that not everyone who helped build the studio would be making the rest of the journey with it.
Here’s the context: Undead Labs had been partnering with Microsoft since 2011, well before the original Xbox deal turned into a full acquisition in 2018. Earlier this year the studio had already signaled it was transitioning out of Xbox, so the independence announcement itself wasn’t a surprise. What’s newly confirmed is the human cost attached to that transition, arriving alongside another wave of cuts across Xbox‘s first-party lineup, a pattern our coverage of Xbox’s studio spinoffs and restructuring has been tracking closely. State of Decay 3 remains in active development, is currently in alpha, and is still targeting a 2027 release on PS5, with a closed beta planned before the end of 2026.
Honestly, this is the part of the Xbox reset that keeps repeating itself. A studio avoids the outright shutdown fate that befell Ninja Theory, keeps its flagship game alive, and gets to call itself independent – but that independence still comes stapled to job losses for people who spent years on the franchise. Undead Labs surviving as a standalone outfit is a better outcome than the alternative, and it puts the studio in the same category as other former Xbox teams parting ways with the platform holder, a dynamic we broke down in our look at the layoffs hitting Microsoft’s wider gaming operation. But “the game is fine” and “the studio kept its lights on” aren’t the same as “nobody got hurt,” and the LinkedIn post itself leaned into that distinction rather than papering over it.
- 2011 – Undead Labs begins partnering with Microsoft.
- 2018 – Undead Labs becomes part of Microsoft’s gaming division.
- September 22, 2026 – Studio confirms independence and significant job losses.
- Before end of 2026 – Closed beta planned for State of Decay 3.
- 2027 – State of Decay 3 targeting PS5 release.
What remains unclear is the actual headcount affected by this round of cuts – Undead Labs hasn’t put a number on it, and nothing in its statement or Push Square’s reporting fills that gap. It’s also not established whether the departures touch development or release timing for State of Decay 3, nor has any new publisher or financial backer been named for the studio’s post-Xbox operation. Ownership structure claims circulating elsewhere aren’t confirmed here either, and readers should treat those as unverified until a named source addresses them directly, a caution worth keeping in mind given how similar publishing exits have played out at other studios.
What to watch: whether Undead Labs discloses a specific layoff figure or details on team structure in the coming weeks, whether the promised closed beta actually lands before the end of 2026, and whether the 2027 PS5 target for State of Decay 3 holds up as the studio settles into its new independent status.
Does Undead Labs going independent change how much confidence you have in State of Decay 3 shipping on schedule? And are the closed beta and 2027 target the milestones you’re watching most closely to see if this transition actually worked?
