We propose a novel method to implement a compact and fabrication-tolerant polarization splitter and rotator (PSR) on the silicon-on-insulator platform. The PSR consists of a silicon wire waveguide coupled to a subwavelength grating (SWG) waveguide in an asymmetrical directional coupler. The SWG effect allows an additional degree of design freedom to engineer the equivalent material refractive index. This is advantageously used to effectively compensate for fabrication inaccuracies in PSRs. Our simulation results show that the PSR has a low TM-to-TE polarization conversion loss of -0.13 dB (a conversion efficiency of 97%) at the wavelength of 1550 nm, and better than -0.4 dB conversion loss over the entire C-band wavelength range. Compared to the PSRs made of conventional wire waveguides, the use of SWG index engineering improves the waveguide width fabrication tolerance substantially, from ±3 nm to ±40 nm. A compact device size with a coupling length of 25 μm is achieved.