Remember when NPC dialogue meant clicking through the same three options until you found the quest trigger? Those days are numbered. AI-driven dialogue systems have gone from tech demos to shipping features in the past twelve months, and the implications for how we play games are massive.

I’ve been testing several games and prototypes that use AI dialogue, and I want to talk about what’s actually working, what’s still janky, and why this matters more than most people realise.

What’s Changed

Traditional game dialogue is a branching tree. Writers script every possible line, designers map every conversation path, and voice actors record it all. The result is polished but fundamentally limited — you can only say what someone predicted you’d want to say.

AI dialogue systems flip this. Instead of pre-scripted trees, NPCs have personalities, knowledge, and goals defined at a high level. The AI generates appropriate responses in real time based on what the player says or does. The conversation isn’t a tree; it’s a genuine back-and-forth.

Replica Studios, an Australian company that’s been at the forefront of AI voice synthesis for games, shipped updated tools in late 2025 that let developers create NPCs with persistent memory and emotional states. An NPC who watched you steal from a merchant yesterday will bring it up tomorrow — not because a writer scripted that interaction, but because the AI tracks narrative context.

Team400 has been doing interesting work in this space too, helping game studios think through the AI architecture needed to make these systems work at scale without blowing out compute costs.

What It Feels Like to Play

I spent about fifteen hours with a pre-release build of an indie RPG using Replica’s dialogue system (under NDA on the title, sorry). Here’s what stood out.

The first hour is uncanny. You’re so used to dialogue being scripted that when an NPC gives you an unexpected, contextually appropriate response to something you didn’t think the game was tracking, it genuinely surprises you. I asked a tavern keeper about a character I’d met earlier, and she responded with gossip I hadn’t heard anywhere else — generated based on the NPC’s personality traits and her defined relationship to that character.

Conversations feel purposeful. In traditional RPGs, I talk to every NPC because I’m trained to hunt for information. With dynamic dialogue, conversations have the unpredictability of talking to an actual person. Sometimes you learn something useful. Sometimes you just have a chat. And somehow, the “just chatting” feels rewarding in a way that reading scripted flavour text never did.

Repetition is gone. This is huge and underappreciated. In every open-world game I’ve ever played, hearing the same guard say “I used to be an adventurer like you” for the hundredth time breaks immersion completely. Dynamic dialogue means NPCs never repeat themselves. They might circle back to topics, but the phrasing is always different.

Where It Falls Apart

It’s not all roses, and I’d be doing you a disservice to pretend otherwise.

Coherence over time. AI dialogue systems struggle with long-term narrative coherence. An NPC might contradict something they said five hours ago because the context window doesn’t stretch that far. Games working around this use “memory summaries” — compressed records of past interactions — but information gets lost in compression.

The “anything goes” problem. When players can say anything, they will say anything. And AI NPCs will sometimes respond to absurd or offensive inputs in ways that break the game’s tone completely. The best implementations use guardrails that keep NPCs in character, but the tension between player freedom and narrative integrity is real.

Voice quality varies. AI-generated voice has improved enormously, but it still doesn’t match top-tier voice acting for emotional range. A synthesised voice delivering a monologue about loss just doesn’t hit the same way as a human actor who’s drawing on genuine emotional experience. For ambient dialogue and side characters, AI voice is fantastic. For key story moments, you still want human performers.

Compute costs. Running real-time language model inference for every NPC conversation isn’t cheap. Smaller studios are finding creative solutions — running lighter models locally, pre-generating conversation pools, using hybrid approaches where key NPCs get full AI treatment while background characters use expanded dialogue trees. But it’s a genuine constraint.

What Australian Studios Are Doing

Australia’s game dev scene is punching well above its weight here. Beyond Replica Studios’ tooling work, several Melbourne and Sydney studios are experimenting with AI dialogue in upcoming titles.

Team Cherry (the Hollow Knight devs) hasn’t confirmed AI dialogue features, but job listings suggest they’re exploring procedural narrative systems for their next project. Given their attention to world-building detail, that’s exciting.

Smaller studios like Summerfall (Stray Gods) are publicly experimenting with hybrid approaches — AI-assisted dialogue writing that feeds into traditional voice recording pipelines. It’s not real-time AI dialogue, but it’s AI dramatically expanding the volume of written content that a small writing team can produce.

Why This Matters Beyond RPGs

The obvious application is open-world RPGs, but the ripple effects go wider.

Multiplayer: AI-driven NPCs could populate online worlds with characters that feel alive between player interactions. Imagine an MMO where shopkeepers remember your buying habits and towns evolve through NPC-driven events.

Accessibility: AI dialogue systems could adapt language complexity, pacing, and even tone to individual players. A player who’s new to a game’s lore could get more explanatory dialogue; a veteran could get more concise responses.

Educational games: Dynamic AI dialogue in educational contexts could create genuinely responsive tutoring experiences. History games where you can interrogate historical figures with any question you can think of.

The Bottom Line

We’re in the early days, and early days are always messy. But the direction is clear: game dialogue is transitioning from a fixed asset to a dynamic system. The games that figure this out first will create experiences that feel fundamentally different from anything we’ve played before.

Keep an eye on what’s coming out of Australia especially. We’ve got the technical talent and the creative ambition to lead this shift. The next few years are going to be wild.