The Santa Monica game company in a statement said the decision stemmed from the failure of "Prototype" to "find a broad commercial audience."
Activision did not say how long it will continue to pay Radical's 90 employees, or whether it will shut down the studio entirely.
"We met with the team and are currently exploring various options for the future of the studio, including a potential sale of the business," Activision said. "Our preference would be to keep the team together. However, it is too early to say anything further at this time."
The studio's initial "Prototype" game, released in 2009, sold more than 2 million copies. Activision did not say how well "Prototype 2," which was released in April, performed at retail.