Nonlinear motions of a rotary drilling mechanism are considered, and a two degree-of-freedom model is developed to study the coupled axial-torsional dynamics of this system. In the model development, state-dependent time delay and nonlinearities that arise due to dry friction and loss of contact are considered. Stability analysis is carried out by using a semi-discretization scheme, and the results are presented in terms of stability volumes in the three-dimensional parameter space of spin speed, cutting depth, and a cutting coefficient. These stability volume plots can serve as a guide for choosing parameters for rotary drilling operations. A control strategy based on state and delayed-state feedback is presented with the goal of enlargening the stability region, and the effectiveness of this strategy to suppress stick-slip oscillations is illustrated.