Undead Labs has officially completed its separation from Microsoft and is now operating as an independent, employee-owned studio. The State of Decay developer confirmed the change on September 22, ending its period as an Xbox first-party studio while keeping development of State of Decay 3 underway. The game remains targeted for release in 2027 across Xbox Series X|S, PlayStation 5 and PC, with a day-one Game Pass launch still planned.
The separation follows Microsoft’s July announcement that Undead Labs had entered terms to move to new ownership as part of a wider restructuring of Xbox. Microsoft confirmed in its latest update that the studio has now transitioned on terms similar to Compulsion Games and Double Fine, which were returned to management with their intellectual property, back catalogs and runway funding. The move forms part of the same reorganization in which Xbox eliminated another 268 roles and reorganized multiple first-party studios.
Undead Labs said its new structure makes the company employee-owned. Studio head Philip Holt said independence brings the developer closer to its community and allows the team to focus on making games and maintaining the support of the players who have followed State of Decay. The studio also expressed gratitude for its years with Microsoft, describing the company as part of the franchise’s history from the beginning.
Development of State of Decay 3 is continuing through the ownership change. Undead Labs says the game is currently in alpha and that work is progressing toward a previously announced closed beta before the end of 2026. Xbox had already confirmed earlier this year that State of Decay 3 is planned for 2027, with the studio expanding its testing program as development advances.
Microsoft has also confirmed that State of Decay 3 will still launch on Game Pass despite Undead Labs becoming independent. The company said the game will arrive through a new publisher, although that publisher has not yet been publicly identified. The arrangement means one of Xbox’s former first-party studios will continue delivering a previously announced Game Pass release even after completing its separation from Microsoft.
State of Decay 3 was shown in more detail during the Xbox Games Showcase in June, where Undead Labs revealed its first gameplay trailer. The game retains the series’ open-world survival structure, with players building communities, managing settlements and fighting an evolving zombie threat shaped by the Blood Plague. It will support solo play and shared-world cooperative multiplayer for up to four players.
The studio has also been using public playtesting to shape development. Alpha tests began earlier in 2026, while Undead Labs said in August that its closed beta would expand to more players before the end of the year. The team has described State of Decay 3 as its largest project to date, with a bigger world and untethered multiplayer requiring broader testing before release.
Undead Labs’ relationship with Microsoft stretches back well before the acquisition. The original State of Decay launched in 2013 through Microsoft Studios, and Microsoft eventually acquired Undead Labs in 2018 as part of a larger expansion of Xbox’s first-party portfolio. The developer remained under Xbox through State of Decay 2’s long-running support cycle and the development of its sequel.
Its departure now places Undead Labs alongside several other studios affected by Microsoft’s restructuring. Compulsion Games and Double Fine have also returned to independent operation, while Ninja Theory faces consultation over a proposed closure after two attempted ownership transfers failed. Those changes followed reports of further Xbox layoffs and studio consolidation that have since been confirmed by Microsoft.
For State of Decay players, the immediate development plan remains unchanged despite the corporate separation. State of Decay 3 is still in active production, remains targeted for 2027 and is still expected to launch on Game Pass alongside Xbox, PlayStation and PC versions. Undead Labs says it will share more about its plans as an independent studio at a later date.
