In early July, Microsoft announced a major restructuring of its gaming division: 3,200 employees would leave Xbox, and four studios would leave the corporation. Among them was Undead Labs, the creators of State of Decay. Fans feared the third installment would be canceled. But the developers took to Discord and said: the game is alive, we’re working, don’t worry. And insider Sunny Games recently added: Alpha 2 has already launched on PC, the current build surpasses State of Decay 2, and a closed beta is still planned.
And that’s not all. Undead Labs is no longer owned by Microsoft—the studio has been sold to an undisclosed buyer. The new owner must reveal themselves by the end of August. Development funding has been retained until release. But there’s a catch: the contract no longer obligates State of Decay 3 to be released on Xbox Game Pass on its launch day. This means the game, which was announced as part of the subscription, may not be included. Strange? Of course.
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The fate of Undead Labs and the development of State of Decay 3
The Xbox restructuring is a well-thought-out restructuring over the past few years. Along with Undead Labs, Ninja Theory (Hellblade), Double Fine, and Compulsion Games are leaving the ecosystem. The first two studios are going to new owners, while the latter are becoming independent. Xbox head Asha Sharma personally assured that funding for the completion of projects is being transferred along with the studios, and that not a single announced game is being canceled.
But rumors quickly spread. Players recalled that State of Decay 3 was announced back in 2020 at the Xbox Games Showcase, and there was still no release date. Speculation began on social media: perhaps the project had been shelved? The developers had to take to Discord and speak frankly. “We see your support and are incredibly grateful. We are here because of you. The team is working hard, and our commitment to the community has grown even stronger. For those who survived, let’s stick together.”
Alpha 2 launch and sequel testing details
Sunny Games, the creator of a YouTube channel about the series who participated in previous closed tests, shared some inside information. According to him, development hasn’t paused for a day. Alpha 2 is the second stage of alpha testing, and it has already begun on PC. The first alpha, as a reminder, was also only for PC players. Participants are invited, and everyone signed an NDA.
According to the insider, the game has noticeably improved since its public reveal. He says the current build is “a thousand times better” than the second game—and this despite previously being very skeptical about the project. Sunny Games admits that after recent events, he feels “much, much calmer” about the game’s fate. However, he received some information off the record, so not everything can be shared publicly.
What is known is that the closed beta is still planned. Consoles are expected to finally join the beta—this will be the first test on Xbox Series X/S and PS5. The internal testing schedule, according to an insider, remains the same. So the project shows promising signs of life.
Undead Labs’ new owner and the project’s future
The identity of the new owner is currently being kept under wraps. Microsoft hasn’t named the buyer. According to media reports, an announcement is expected by the end of August 2026. The agreement between Microsoft and the new owner guarantees the completion and release of State of Decay 3.
But there’s an important detail. The original contract with Xbox stipulated that the game would be released on Game Pass on the day of release. After the sale of the studio, the new owner is no longer obligated to honor this condition. Game File, citing sources, reported that the game will not be required to comply with “any Xbox oversight terms.” This means State of Decay 3 may not be available on the subscription service—either on the day of release or later.
Sunny Games itself cautions that the new owners may well demand changes. The project’s direction, monetization model, and timeline are all in question. He wrote to Undead Labs CEO Philip Holt, requesting an interview. He didn’t receive a direct refusal, but the decision once again rests with the studio’s new owners.
Gameplay and details from Xbox Showcase 2026
In June, at the Xbox Games Showcase 2026, Undead Labs finally showed off its first gameplay. And the scale is impressive. The map is four times larger than State of Decay 2. Co-op—up to four players in a shared world, like Grounded—players build settlements, harvest resources, fight zombies, and unite enclaves into a cohesive community.
The developers confirmed that the game will feature the Plague Nests system—dynamic nests of infected that evolve and adapt. Death of squad members is permanent. Weapon crafting, an improved combat system, expanded building options—it’s all coming. The game is being developed using Unreal Engine 5. According to creative director Kevin Patzelt, players are already playing the alpha version and are enjoying it.
State of Decay 3 release date and platforms
The release is scheduled for 2027. The game will be released on PC, Xbox Series X|S, and PlayStation 5. The exact date is still unknown. It’s a long road—seven years will pass from the 2020 announcement to the release. But it looks like the project is truly moving toward the finish line.
You can sign up for playtests on the official State of Decay 3 Playtest website. It’s also worth keeping an eye on the Undead Labs Discord channel for the latest news. If you’ve been waiting for the third game since its announcement, there’s no reason to panic. The game hasn’t been canceled, Alpha 2 is ongoing, and a beta is planned. Yes, the management changes and uncertainty with Game Pass are alarm bells. But for now, that’s the only clue that hints at problems. Everything else suggests that Undead Labs’ zombie survival game is alive and well, and details are gradually being fleshed out.
