Killer Instinct's been inactive for several years, though recent rumours suggest a sequel's entered development. Reportedly, Microsoft's now enlisted the help of Tekken and Soulcalibur publishers Bandai Namco to get this project off the ground.
During the XboxEra podcast, @Shpeshal_nick claims a Killer Instinct reboot could be in the works. Moreover, WindowsCentral's Jez Corden said that rumors surrounding this next Killer Instinct say that Bandai Namco Entertainment are helping out develop this next game, though Microsoft's yet to formally comment.
Killer Instinct's Rumoured Reboot Could Involve Bandai Namco
Right now, Killer Instinct's post-launch support wrapped up in 2017. Developers Iron Galaxy are currently working on its own wrestling battle royale through Rumbleverse. While they've previously stated they'd like to make a new game, they might not have the resources for it currently.
Bandai Namco Entertainment hasn't previously worked on Western IPs when it comes to fighting games, but that doesn't rule them out. Right now though, this all remains unconfirmed, so take these rumours with a pinch of salt. We'll keep you informed if we hear further details.