The elliptical rotor engine (ERE) is a novel engine type that enables a high power-to-weight ratio and high compression ratio (CR), resulting in a significant increase in thermal efficiency. However, the high CR also makes the engine prone to knock, limiting its performance potential. Addressing the challenge of knock induced by high CR is essential for optimizing ERE performance. This study introduces an innovative approach, combining CR with an air-assisted direct injection (AADI) device, using advanced computational fluid dynamics simulations to investigate their effects on knock and energy conversion characteristics of a downsized gasoline ERE. The findings reveal that increasing CR from 9.26 to 11 boosts indicated thermal efficiency (ITE) by 18.27%. However, knock occurrence disrupts energy distribution, leading to increased heat transfer losses. Notably, knock appears earlier and more intensely at the front end of the combustion chamber compared to the back end. The incorporation of AADI markedly reduces knock tendency, enhances ITE by 14.28% relative to the prototype, and reduces heat transfer loss by 42.41%. This study demonstrates that AADI not only effectively inhibits knocking, but also significantly improves the overall performance of the ERE, providing a promising solution for the development of high-performance rotary engines.