Do you want the good or bad news first? Well, Obsidian is working on a new Fallout game. However, the project seems to have arisen due to layoffs, restructuring, and a shift towards safer bets. Jason Schreier’s Bloomberg article revealed the existence of this project, which appears to still be in its early days and was not planned until recently.
Frankly, this news should be among the most exciting of 2026, but its circumstances undermine any natural hype. At the moment, Microsoft’s Xbox division hasn’t confirmed anything about the upcoming RPG, and there’s probably not much to confirm; nevertheless, we know a few things due to the Fallout leak, assuming they are accurate.
Just to be 100% clear, none of this information has been officially confirmed by Microsoft.
Josh Sawyer Is Reportedly Directing
Fallout New Vegas’s Project Director
As unceremonious as this reveal has been, Fallout fans can at least latch on to one exciting detail in Schreier’s report: John Sawyer appears to be stirring the ship. For the uninitiated, Sawyer was Fallout: New Vegas‘s project director and lead designer, and he has an impressive resume dating back to before Obsidian’s founding, working on Black Isle’s Icewind Dale. Over the years, the developer served as the project director for Fallout: New Vegas and both Pillars of Eternity games, all of which are regarded as all-time great RPGs.
According to the report, Sawyer was working on a game that resembled the Fallout universe but was its own thing, though that project is presumably now canceled or on the back burner. Naturally, video game development involves hundreds, if not thousands, of contributors, and a title’s success or failure cannot be credited to a single person; however, Sawyer’s track record speaks for itself, with every game on his resume being at least “good.”
Despite Sawyer’s involvement, this is not a case of the New Vegas team returning for more.
The Move Was Forced by Xbox’s New CEO
The New Direction
In February 2026, Phil Spencer stepped down as Xbox’s CEO, and the role was assumed by Asha Sharma. Such a major change typically results in shifts in priorities and structure, and Microsoft’s Xbox division is no exception. One of the CEO’s earliest announcements was a reduction in Game Pass Ultimate’s subscription price, a decision that was, unsurprisingly, well received by players.
According to the one available account, Obsidian’s new Fallout game isn’t a passion project but rather a mandate from the Xbox CEO. This decision arose from the disappointing sales of the developer’s recent games, mainly Avowed and The Outer Worlds 2. As great as Obsidian’s RPGs consistently prove to be, the developer is unfortunately no stranger to commercial disappointments, even if titles like Grounded proved to be success stories.
Doubling down on established franchises seems to be the new strategy, which isn’t that different from Xbox’s historical reliance on its core first-party IPs like Halo, Gears of War, and Forza.
Obsidian Has Reportedly Lost 25% Of Its Staff
The Cost of the Pivot
Predating Schreier’s report by a day, Xbox reportedly let go of a substantial percentage of Obsidian’s employees, and the studio wasn’t the only one subjected to layoffs. This news reflects Microsoft’s decision to restructure its divisions, resulting in seemingly smaller teams that will focus almost entirely on new games in established franchises that are more likely to be sure-fire hits.
Typically, AAA developers divide their workforce to explore multiple projects simultaneously, even if the split is uneven. Based on everything that has come in July 2026 so far, that system will likely not be utilized by Xbox’s studios, at least not in the immediate future.
Avowed 2 Has Reportedly Been Canceled (Along With Other Games)
Fallout Now, Who Knows Later
The new Fallout game has Obsidian’s full attention, with every other project being essential. According to Schreier’s report, the developer was exploring a sequel to 2025’s Avowed that would build on that RPG’s foundation and engine, with the hope that a quick turnaround could be feasible. This project has seemingly been canceled, along with other unspecified games that might have been in development.
Apparently, a very small team is slightly chipping away at Avowed 2, just to keep the sequel alive in case a revisit is possible in the future. That said, I wouldn’t recommend keeping your hopes up, as this sounds like a Hail Mary prayer at this point.
Bethesda Is Partnering With Obsidian on Development
Working Together
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Although presented as a bit of a footnote in the report, Schreier revealed that the plan is for Obsidian and Bethesda Game Studios to work together to craft the new Fallout game, which aligns with Xbox and Scharma’s directive to consolidate resources on a few franchises. Even though Fallout 76‘s staying power has far exceeded its terrible first impression, it has been more than a decade since the last traditional entry in the franchise, and Xbox even failed to capitalize on the hype surrounding Amazon’s live-action series.
An earlier report suggested that a Fallout game was canceled in early 2026, and we don’t know whether that project has anything to do with Obsidian or Bethesda’s current efforts. Presumingly, Bethesda’s main priority will be The Elder Scrolls 6, which seems to have been stuck in limbo for years.
