Short tandem repeats (STRs) represent an important class of genetic variation that can contribute to phenotypic differences. Although millions of single nucleotide variants (SNVs) and short indels have been identified among wild Caenorhabditis elegans strains, the natural diversity in STRs remains unknown. Here, we characterized the distribution of 31,991 STRs with motif lengths of 1-6 bp in the reference genome of C. elegans. Of these STRs, 27,667 harbored polymorphisms across 540 wild strains and only 9,691 polymorphic STRs (pSTRs) had complete genotype data for more than 90% of the strains. Compared to the reference genome, the pSTRs showed more contraction than expansion. We found that STRs with different motif lengths were enriched in different genomic features, among which coding regions showed the lowest STR diversity and constrained STR mutations. STR diversity also showed similar genetic divergence and selection signatures among wild strains as in previous studies using single-nucleotide variants. We further identified STR variation in two mutation accumulation line panels that were derived from two wild strains and found background-dependent and fitness-dependent STR mutations. We also performed the first genome-wide association analyses between natural variation in STRs and organismal phenotypic variation among wild C. elegans strains. Overall, our results delineate the first large-scale characterization of STR variation in wild C. elegans strains and highlight the effects of selection on STR mutations.