Undead Labs Lays Off ‘Significant’ Number Of Developers As State Of Decay 3 Pushes Toward 2026 Launch

Undead Labs, the studio behind the acclaimed zombie survival series State of Decay, has announced it is parting ways with a “significant” number of developers working on its long-awaited sequel, even as the team insists the layoffs will not affect the game’s launch. The news came late yesterday, just days after the studio confirmed it had become an independent, employee-owned company following its exit from Microsoft’s Xbox restructuring. The move marks a bittersweet milestone for a team that spent over a decade fighting to regain control of its own future.

The studio’s leadership framed the situation as a difficult but necessary step in its transition to independence. In a statement shared on LinkedIn, Undead Labs acknowledged the emotional weight of the decision, noting that not every colleague who helped build the studio will be there for its next chapter. Meanwhile, the company reaffirmed its commitment to the game that has defined its identity for years, promising that development continues on schedule.

A Hard Transition To Independence

The layoffs may have impacted up to 40 of the studio’s developers, according to one source who spoke with Kotaku. Undead Labs did not immediately respond to a request for comment on the total change in headcount following the divestment from Xbox. The broader context of the situation is significant: the smaller studios released by Xbox, including Undead Labs, departed with “their IP, back catalogs, and runway funding,” suggesting that the deals finalized with Microsoft included some post-divestment funding to help the studios weather the transition.

For a studio that has been at the forefront of the zombie survival genre since the original State of Decay, this independence came at a real cost. The studio’s founding FX director John Gronquist captured the sentiment of many departing employees in his own words.

“Today the studio that I have been at since its inception 15 years ago fought its way back to independence, at great cost,” Gronquist posted on LinkedIn yesterday. “Sadly I won’t be making that final leg of the journey with them, being included in the latest round of layoffs. The company and leadership have gone above and beyond to be transparent and treat the process with humanity and respect that is rare in this industry, and I leave with no regrets other than not being there with them at the finish line to ship State of Decay 3.”

John Gronquist, Undead Labs

Despite the departures, the studio’s remaining team appears focused on maintaining momentum. Studio head Philip Holt addressed the situation directly, emphasizing that the game remains the studio’s central priority.

“State of Decay 3 remains in active development, and these changes will not impact the game’s launch,” Holt told IGN. “The team is continuing its work on schedule, and we remain committed to delivering the experience our community has been waiting for. We’re grateful to everyone who has contributed to the game.”

Philip Holt, Undead Labs

A Long Road To Release

The sequel has been a fixture of gaming anticipation for years. First announced back at Xbox’s 2020 summer showcase, State of Decay 3 has faced ongoing challenges throughout its development, including a reveal trailer that many fans felt fell short of expectations. The game finally appears to be gaining real momentum, with Undead Labs promising a closed beta test as early as the end of 2026.

Adding to the uncertainty around the game’s future is the fact that State of Decay 3 reportedly has a “new publisher,” though the identity of that company has not been announced. This development, combined with the studio’s shift to independence, suggests a significant restructuring of how the game will reach players. The combination of a new publisher and a leaner development team will likely shape the game’s marketing, release strategy, and long-term support.

For the community that has followed the series since its inception, the news is a mixed bag. On one hand, the studio’s independence offers a chance for Undead Labs to pursue its creative vision without the constraints of a larger corporate parent. On the other, the loss of a “significant” number of developers raises questions about the depth of expertise and resources that will carry the game into its final stages.

Looking Ahead

As Undead Labs navigates this pivotal moment, the focus for the remaining team will be on preserving the quality and scope of State of Decay 3 through its final development phases. The studio’s promise of a closed beta by the end of 2026 provides a concrete milestone, though the exact release window remains unconfirmed.

The coming months will be crucial in determining whether the studio can deliver on its commitments despite the personnel changes. With a new publisher on board and a leaner team at the helm, the path forward for one of gaming’s most beloved zombie survival franchises remains uncertain but promising. The community will be watching closely to see how Undead Labs translates its independence into a successful launch for the game that has defined its legacy.