The Sandworms live on a world referred to by Beetlejuice as "Saturn". Another name for it is "Sandwormland" in a region of the Neitherworld. It is sort of a "Forbidden Zone". They live in sand their entire lives, occasionally invading other parts of the Neitherworld as well as the Real World. Sandwormland acts as a kind of limbo for deceased people. Sandworms are presumably extradimensional, because of this.