Baldur's Gate III: The Black Hound (code named Jefferson and FR6) was mentioned in early 2001 as a new game in the Baldur's Gate series to be made by Black Isle Studios using a completely new 3D engine.
The Black Hound was originally going to be a departure from the high-powered epic of the Bhaalspawn saga to a low-key, roleplaying plot. With protagonists progressing to around level four at the end of BIS' typically enormous campaign and a hard cap at level eight, gameplay was refocussed to a flat and wide adventure emphasizing quests over combat. In fact, the game was only titled "Baldur's Gate" due to Interplay having lost the general D&D license to Atari, but still retaining the right to make "Baldur's Gate" and "Icewind Dale" branded D&D games (the same reason as for BGDA's title.)The game was not going to be connected to the previous Baldur's Gate series in any way and would start a new series, the Black Hound series. Like Bioshock Infinite it would have been a sequel in terms of gameplay and not story, it would continue some parts of the Icewind Dale II story though.
The game was announced in 2002 and was said to have used the 3rd Edition Dungeons & Dragons ruleset, the gameplay of the previous Baldur's Gate games would have been updated to fit the ruleset. Many new gameplay features were also going to be added to fit the 3rd Edition Ruleset better, elements from the Dark Alliance series would have also been borrowed. The game used the Jefferson Engine which featured 3D effects such as casting dynamic shadows. The game was 75% finished before it was canceled. Its cancellation happened due to Interplay losing the right to publish Baldur's Gate games on the PC yet retaining the Baldur's Gate name for consoles, the result of this was Baldur's Gate: Dark Alliance II.
The game appeared to be canceled in 2003, just before its engine was re-purposed for Black Isle's ill-fated Van Buren Fallout 3 project. Subsequently, Josh Sawyer, one of the designers of the canceled game, resumed development of The Black Hound as a module for Neverwinter Nights 2.[ As of 2009, this remains a side project for Sawyer, who works at Obsidian Entertainment.
However, in April of 2004 IGN released information that a Baldur's Gate III was in the works at that time, no longer to be developed by Black Isle and published by Interplay, but to be published by Atari.
As revealed in an interview with Winterwind Productions, Black Hound developer Damien Foletto revealed the story and setting of the game, which would have been in the Dalelands. The player character would have been resting at his campsite when a lady chasing a Black Hound crashes in, she kills the hound which dies on the player's lap. Accusing the player of being in league with the dog, she is about to kill the player as well, but the Riders of Archendale arrive and scare her off and question the player. After a brief inquisition, the local magistrates tell the player not to wander far because they may have more questions. And so begins the players quest to find out who the mad cleric was, what this has to do with him/her, why a black spirit hound now follows him/her around, and why can't people just leave the player character alone and do things for themselves.
In the January 2008 issue of PC Gamer UK, the editor claims that he knows that Baldur's Gate III is indeed being worked on - this has further been reiterated in the January 2009 edition.
On December 2, 2008, Atari stated in a press conference that the Baldur's Gate series (among others) would be revisited after 2009.
