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The nematode Caenorhabditis elegans is among the most widely studied organisms, but relatively little is known about its natural ecology. Genetic diversity is low across much of the globe but high in the Hawaiian Islands and across the Pacific Rim. To characterize the niche and genetic diversity of C. elegans on the Hawaiian Islands and to explore how genetic diversity might be influenced by local adaptation, we repeatedly sampled nematodes over a three‐year period, measured various environmental parameters at each sampling site, and whole‐genome sequenced the C. elegans isolates that we identified. We found that the typical Hawaiian C. elegans niche comprises moderately moist native forests at high elevations (500–1,500 m) where ambient air temperatures are cool (15–20°C). Compared to other Caenorhabditis species found on the Hawaiian Islands (e.g., Caenorhabditis briggsae and Caenorhabditis tropicalis), we found that C. elegans were enriched in native habitats. We measured levels of genetic diversity and differentiation among Hawaiian C. elegans and found evidence of seven genetically distinct groups distributed across the islands. Then, we scanned these genomes for signatures of local adaptation and identified 18 distinct regions that overlap with hyper‐divergent regions, which may be maintained by balancing selection and are enriched for genes related to environmental sensing, xenobiotic detoxification, and pathogen resistance. These results provide strong evidence of local adaptation among Hawaiian C. elegans and contribute to our understanding of the forces that shape genetic diversity on the most remote volcanic archipelago in the world. [ABSTRACT FROM AUTHOR]