The company's console output has been limited to Microsoft's Xbox, but this news now cements them as a key developer in Microsoft's arsenal.

"At Microsoft Game Studios we have worked hard to become the best partner for the best creative talent in our industry, and this acquisition underscores our commitment to excellence," said Shane Kim, general manager of Microsoft Game Studios. "Peter Molyneux is one of the few true visionaries in our industry, and his joining us is incredibly important to the future of both interactive entertainment and MGS. Lionhead is a shining example of the innovative and creative talent that has delivered some of the most influential and unique games experiences to date, and I am honored to welcome Peter and the incredible people at Lionhead Studios."

"We could not be more excited about being part of MGS. They have long supported our creative vision, and this teamwork resulted in the hugely successful 'Fable' franchise," said Molyneux, managing director of Lionhead Studios. "This acquisition gives Lionhead the stability and opportunity to focus on creating world-class next-generation titles. We are joining some of the most incredible game creators in the industry, the combined talent of which will truly take next-generation gaming to a new level."

Lionhead joins the likes of Bungie, Ensemble Studios, FASA and Rare as members of Microsoft Game Studios. No titles have been announced for the Xbox 360 yet, but Fable 2 is rumoured to be in development. Expect to hear more about what the studio is working on at E3 next month.