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Obsidian Entertainment is developing a new Fallout game, according to a report by Bloomberg. The report also states that the studio has canceled several in-development projects, including a planned sequel to its 2025 RPG, Avowed.

The ongoing layoffs across Xbox’s gaming division have reportedly impacted roughly 25% of Obsidian’s staff, including long-time art director Daniel Alpert. Bloomberg reports that, as part of Xbox’s new initiative to largely focus on its biggest existing franchises, Obsidian’s development pipeline has shifted toward developing a new Fallout game, with studio design director Josh Sawyer at the helm. Obsidian has worked in this universe before, having previously made 2010’s well-received Fallout: New Vegas. 

Obsidian had been working on Avowed 2, which was said to be going well and on track to be announced within the next year. However, the sequel did not fit into Xbox CEO Asha Sharma’s new company strategy. Although that project is effectively shelved, Bloomberg states that some employees will continue working on it as the new Fallout comes together in hopes of a potential revival.

Avowed was one of three games Obsidian released in 2025, alongside Grounded 2 (which launched in Early Access) and The Outer Worlds 2. Unfortunately, although Avowed and The Outer Worlds 2 garnered generally positive reviews, both underperformed in sales. Despite pivoting to a new Fallout, Obsidian will also continue working on Grounded 2 and DLC for The Outer Worlds 2. 

For more on Xbox's massive ongoing restructuring, read about how Doom developer id Software lost roughly half of its staff. You can also read how Hitman developer IO Interactive regained ownership of its online RPG Project Fantasy following its split from Xbox. For more on Obsidian, check out our reviews for Avowed and The Outer Worlds 2.  

[Source: Bloomberg]

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