Hot on the heels of Unity 3D being released free for Indies, Epic has now released their Unreal Development Kit for free for non-commercial purposes.

You may know this engine from games such as Gears of War, Bioshock, Borderlands, etc. You may also remember the controversy with Silicon Knights and Epic. Here's a list of games that used it. http://en.wikipedia.org/wiki/List_of_Unreal_Engine_games

It is only free for non-commercial purposes but you CAN sell your games.  Their licensing terms are here. I do think that their terms will be adjusted though in the near future as they are talking to Steam about a deal.

Snippet: If you are creating a game or commercial application using UDK for sale or distribution to an end-user or client, or if you are providing services in connection with a game or application, the per-seat option does not apply. Instead the license terms for this arrangement are $0 (zero) up-front, and a 0% royalty on you or your company's first $5,000 (US) in UDK related revenue, and a 25% royalty on UDK related revenue above $5,000 (US). UDK related revenue includes, but is not limited to, monies earned from: sales, services, training, advertisements, sponsorships, endorsements, memberships, subscription fees, rentals and pay-to-play.

Example:

# A team creates a game with UDK that they intend to sell. After six months of development, they release the game through digital distribution and they earn 15,000 in the first calendar quarter after release. Their use of UDK during development requires no fee. After earning 15,000, they would be required to pay Epic 2,500 (0 on the first 5,000 in revenue, and 2,500 on the next 10,000 in revenue). On subsequent revenue, they are required to pay the 25% royalty.

Games created are completely standalone so you won't need UT3 or anything to run it!

There is no charge for noncommercial or educational use of UDK. Over 100 academic campuses currently use Unreal Technology as part of teaching game development-related courses, and colleges with plans to incorporate UDK into their curricula include the University of Pennsylvania, North Carolina State University, The Art Institute system of schools, Drexel University, Westwood College, DeVry University and Atlantic College, with many others to be announced.

This is a great move for Epic as developers who grow up using UE3 in school and home will most likely want to want to use it commercially as well.

Here's an example of a great game made by using UDK by a two  man team in less than two months! http://www.udk.com/showcase-whizzle.html

Another game called "The Ball" can be downloaded for free as well. This was developed as a Unreal Tournament 3 mod and ported over.

Download the Unreal Development Kit here. It clocks in at 563mb.

3D Buzz hosts hundreds of free video tutorials for using Unreal Engine 3 technology.

Thanks to Ludicrous for the forum thread!