A rotary engine including a rotor sealingly received within an internal cavity of an outer body to define a plurality of combustion chambers having a variable volume, a pilot subchamber located in a wall of the outer body, the pilot subchamber in fluid communication with the internal cavity via at least two spaced apart transfer holes defining a flow restriction between the pilot subchamber and the internal cavity, a pilot fuel injector in fluid communication with the pilot subchamber, an ignition element configured for igniting fuel in the pilot subchamber, and a main fuel injector extending through the stator body and communicating with the cavity at a location spaced apart from the pilot subchamber. A method of combusting fuel in a rotary engine is also discussed.