Disney is laying off 700 people from the interactive unit that makes video games and operates websites, about a quarter of the workforce in the division.
A Walt Disney spokesman confirmed the layoffs on Thursday.
The move narrows the company's focus on mobile and social games that use key Disney characters. Some games that Disney acquired when it bought social game maker Playdom in 2010 for US$563 million (NZ$667m), such as Sorority Life, will be discontinued.
It is also discontinuing one-time hits, such as music play-along game, Tap Tap Revenge.
Disney Interactive had long been a money-losing unit and last month posted only its third profitable quarter since results began being broken out in 2008, thanks in part to its Disney Infinity console game, which Disney will keep supporting.
The company shuffled the executive ranks at Disney Interactive in November. Co-president John Pleasants stepped down, leaving co-president Jimmy Pitaro with responsibility for the division.
In a statement on Thursday, Disney said the restructuring was "difficult but necessary given our long-term strategy focused on sustainable profitability and innovation."
Shares of the Burbank, California, company added 37 US cents to US$83.05 in afternoon trading. Earlier in trading shares touched US$83.42, an all-time high.