The rise of large language models (LLMs) and generative AI (GenAI) has transformed game development by enabling game designers new ways to increase player engagement and interaction. One significant application is the creation of NPCs capable of dynamic, unscripted communication. While multiplayer games thrive on social engagement, single-player experiences often suffer from pre-scripted NPC interactions. However, the challenges and implications of integrating GenAI-based NPCs into games remain largely unexplored. This workshop brings together researchers and game developers to discuss the potential and limitations of GenAI-based NPCs, their impact on player experience, and the social and ethical concerns they raise. By facilitating dialogue on best practices and research directions, we aim to initiate discussion on the next generation of intelligent, socially responsive NPCs that enhance immersion and engagement in gaming.