We present details of the derivation of local chiral effective field theory interactions to next-tonext-to-leading order, and show results for nucleon-nucleon phase shifts and deuteron properties for these potentials. We then perform systematic auxiliary-field diffusion Monte Carlo calculations for neutron matter based on the developed local chiral potentials at different orders. This includes studies of the effects of the spectral-function regularization and of the local regulators. For all orders, we compare the quantum Monte Carlo results with perturbative many-body calculations and find excellent agreement for low cutoffs.