Obsidian reportedly making Fallout after Avowed sequel is cancelled

July 10, 2026·3 min read

Obsidian Entertainment is reportedly working on a new Fallout game led by Josh Sawyer after Microsoft canceled a planned sequel to Avowed. The project has not been formally announced by Xbox, Bethesda or Obsidian, but it would be a big change for one of Microsoft’s best-known RPG studios.

The move comes during a difficult week for Xbox, with Microsoft cutting thousands of roles and reassessing projects across its gaming business. Obsidian was also hit by layoffs, with earlier reports saying the studio lost around a quarter of its staff.

Obsidian is returning to Fallout

The new Fallout game is reportedly in early development at Obsidian. Josh Sawyer, the director of Fallout: New Vegas and Pentiment, is leading the project.

Obsidian’s Fallout history still carries weight with RPG fans. Fallout: New Vegas launched in 2010 and became one of the series’ most respected entries, especially for its quest design, faction writing and player choice.

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Avowed sequel is reportedly canceled

Microsoft has reportedly pulled the plug on an Avowed sequel that was already in planning. The sequel had been moving forward and was expected to be announced within the next year, but it no longer fits Xbox’s current priorities.

Avowed launched on February 18, 2025, for Xbox Series X|S, PC, cloud and Game Pass. The game returned Obsidian to the Pillars of Eternity universe with a first-person RPG set in Eora, giving Xbox one of its key first-party releases for the year.

Xbox is choosing safer bets

The reported Fallout move shows Xbox putting money behind a brand with stronger name recognition. Fallout has stayed visible through Fallout 76, older game sales and Amazon’s TV adaptation, while Bethesda Game Studios remains busy with The Elder Scrolls VI.

A new Fallout from Obsidian would be an easy headline for players who have spent years asking for another New Vegas-style project. It also gives Xbox a way to use a franchise it already owns without waiting for Bethesda’s main team to finish its next full Fallout game.

Obsidian is still handling other projects

The studio is not shifting to Fallout alone. Obsidian is also expected to keep working on Grounded 2 and post-launch content for The Outer Worlds 2, while managing the impact of layoffs across its teams.

Obsidian is now in a difficult spot. The studio has released several games for Xbox in a short span, including Grounded, Pentiment, Avowed and The Outer Worlds 2. It is now linked to Fallout while working with fewer people.

Microsoft has not announced the game

Xbox has not confirmed the new Fallout project, its title, platforms, release window or scope. Obsidian has also not announced the cancellation of an Avowed sequel. For players, the current status is simple. Avowed remains available, and the reported sequel is no longer moving ahead. Obsidian is now linked to a new Fallout game led by the director of New Vegas.