A rotary engine with axially directly connected compression and power cylinders is disclosed, which includes a compression cylinder, a power cylinder, an intermediate cylinder wall located between the compression and the power cylinder to serve as a common inner-end wall of the two cylinders, and a combustion chamber unit fixed to a circumferential surface of the intermediate cylinder wall, so that the rotary engine has axially directly connected compression and power cylinders. A compression-side and a power-side rotational valve are separately fitted in two recessed end surfaces of the intermediate cylinder wall. The compression-side and the power-side rotational valve are provided with three L-shaped first and second openings, respectively. Compressed air-fuel mixture in the compression cylinder flows through the L-shaped first openings into the combustion chamber, and high temperature high pressure gas generated after explosion in the combustion chamber unit flows through the L-shaped second openings into the power cylinder.