Obsidian's Avowed 2 may not be dead — but a new Fallout is definitely happening

Microsoft's Xbox restructuring hit Obsidian Entertainment hard this July, wiping out roughly a quarter of its workforce. Bloomberg reported that Xbox CEO Asha Sharma's "big reset" plan killed Avowed 2 entirely and redirected the studio toward a new mainline Fallout game. Now Obsidian co-founder Chris Avellone is pushing back — and his account is meaningfully different.

The layoffs

A California WARN notice confirmed 52 employees were let go — around 25% of Obsidian's headcount. Sharma's strategy reportedly favors large, proven franchises: Fallout, Elder Scrolls, Halo. Smaller or experimental projects got cut. Several unannounced games are now "on pause," including a new Shadowrun title that Fallout: New Vegas writer John Gonzalez had been developing after returning to the studio in early 2025.

What Avellone says

Per Shacknews, Avellone posted on X that Avowed 2 hasn't been canceled outright — a small team is still working on the concept and hoping to re-pitch it to Xbox leadership. His reasoning: the project is too far along in development to simply be scrapped. He also confirmed Bloomberg's core claim that Obsidian is actively developing a new Fallout RPG, to be led by Josh Sawyer — the director of Fallout: New Vegas.

The two accounts aren't entirely incompatible. Bloomberg says Avowed 2 "did not fit" Sharma's strategy; Avellone frames it as a re-evaluation still in progress rather than a clean cancellation. Neither Obsidian nor Xbox has made an official statement.

What's still on track

Not everything is frozen. Grounded 2 content continues in a partnership with Eidos Montréal. The Outer Worlds 2 is getting at least two DLC packs — Avellone expects the first to drop in September 2026, with a possible announcement at gamescom in late August.

Pillars of Eternity 3 is the wildcard. Avellone's view: if Avowed 2 never ships, a third Pillars game becomes unlikely, since both franchises share the same fictional universe and Avowed is the more commercially visible of the two.

The bottom line is that Obsidian's near-term future hinges on one question Xbox hasn't answered publicly: is Avowed 2 shelved for good, or just waiting for a greenlight that may still come?