Caenorhabditis elegans larvae display specific behavior and development that is not observed in adults. For example, larvae go through a molting cycle that includes a sleep-like state prior to the molt. The study of these processes requires high-resolution long-term observation of individual animals. Here we describe a method for simultaneous culture and observation of several individual young C. elegans larvae inside agarose hydrogel-based arrayed microcompartments. We used agarose hydrogel microcompartments to observe and quantify larval specific sleep-wake-like behavior and to observe neuronal rewiring using confocal fluorescence microscopy without acute immobilization. We found no behavioral aberrations caused by area restriction. We show that worms cultured inside hydrogel microcompartments develop into normal adults. Thus, hydrogel microcompartments appear useful for long-term observation of larval behavior and development.