Early projects included Star Wars: Knights of the Old Republic II: The Sith Lords and Neverwinter Nights 2, both sequels to BioWare-developed games.

Other notable works from Obsidian include Fallout: New Vegas, Dungeon Siege III, and South Park: The Stick of Truth, all of which are also licensed properties.

The team's focus then changed from developing licensed titles to creating original games based on the studio's own intellectual property, including a sequel to Pillars of Eternity.

The team eventually chose "Obsidian Entertainment", which they thought was strong, memorable, and felt similar to name of their old studio, Black Isle.

[7] Towards the end of 2003, the team was contacted by LucasArts president Simon Jeffrey, who requested that Obsidian make an action role-playing game set in the Star Wars universe.

The team suggested a game concept which featured first-person lightsaber melee combat and that included established characters like R2-D2.

[7] The partnership between the two companies finalized in late 2003, and development of the game, which became Star Wars Knights of the Old Republic II: The Sith Lords, began in October 2003.

Due to the moved deadline, Obsidian also did not have enough time to polish the game, and The Sith Lords suffered from crashes and other technical issues.

As of July 2004, it had expanded to 27, with 18 from Black Isle, and others from Blizzard Entertainment, Electronic Arts, Taldren, Totally Games, Treyarch, and Troika.

[5] The team were given sufficient time for the game's development, and Atari was willing to delay the project's targeted release window from Christmas 2005 to October 31, 2006.

Disney Interactive Studios commissioned Obsidian to develop a prequel to Snow White and the Seven Dwarves called Dwarfs, which was set to be a third-person action game for the PlayStation 3 and Xbox 360.

As CEO, Iger led Disney to head in a completely different direction, which made the Snow White franchise "untouchable" and resulted in the cancellation of the project.

The game's development was troubled; the team did not have a precise vision for Alpha Protocol and struggled to settle on what gameplay elements to include and what the target audience should be.

[31] Avellone later added that they were unable to develop a sequel because the rights to the game were owned by Sega and crowdfunding would not be a suitable option.

[33] On April 25, 2014, however, Urquhart told Computer & Video Games that the agreement between the companies had dissolved after Red Eagle had failed to secure the necessary funding.

Prior to working on New Vegas, they were contacted by Bethesda Softworks about developing a Star Trek game, but the idea never gained traction.

[42] The team originally thought the phone call from South Park Digital Studios was a prank carried out by another company located in the same building.

[43] Obsidian met with South Park's creators, Matt Stone and Trey Parker, with the two parties agreeing that it was critical that the game share the television show's construction paper-like visual aesthetic.

[7] They also lost their bonus for Fallout: New Vegas, as the game failed to meet Bethesda's standard—an aggregate review score of 85 at Metacritic—by 1 point.

According to Adam Brennecke, an executive producer at Obsidian, if they failed to pitch a project to a publisher in time they would have exhausted their money and gone bankrupt.

[54] Obsidian's campaign was hugely successful, raising $4 million and breaking the record set by Double Fine Adventure.

[62] In August 2015, Obsidian partnered with inXile and Double Fine to launch a new funding website named Fig, with Urquhart serving as a member of the company's advising board.

[72] The game was originally called Fury, whose concept was created in 2006, and is set in "a world that had been laid waste by a magical apocalypse".

[74] On January 27, 2017, Obsidian announced Pillars of Eternity II: Deadfire and launched a crowdfunding campaign on Fig to raise additional development funds.

[75] In February 2017, it was announced that Obsidian were leaving the development of Armored Warfare in the hands of the game's publisher to finish the project.

[80] In 2021, another unannounced open-world project for PC and console was also found to be in development through a technical artist job posting on the company's website,[81] which was later revealed to be The Outer Worlds 2 during the Xbox + Bethesda E3 2021 showcase.

Obsidian built its reputation making sequels in well-established franchises including Star Wars: Knights of the Old Republic, Neverwinter Nights, Fallout, and Dungeon Siege.

Urquhart has stated that the company is fine with developing sequels, as they are often fun to make since the studio can "get to go play in someone else's world" and further explore and expand upon the original games' ideas.

[84] The studio's focus did later shift towards developing their own games, which allowed Obsidian to maximize their creative freedom and escape the constraints imposed by publishers.

[21] As an independent company prior to their 2018 acquisition by Microsoft, Obsidian believed that they must act and react quickly to market changes and not stagnate on any certain point.