Walcott, 20, has been at the centre of a club-versus-country row as he is also in the senior squad for World Cup qualifiers against Kazakhstan and Andorra, with Wenger fearing his winger suffering burnout.
His inclusion is seen as a victory for U21 coach Stuart Pearce, who has pushed for the inclusion of eligible players even if they have been promoted to Fabio Capello's seniors.
If Pearce's youngsters win their tournament in Sweden, Walcott will have just one week of rest before he is scheduled for pre-season training with his club.
Wenger is also aware that the last time Walcott went on international duty he returned to his club with a dislocated shoulder and was out for four months.
Pearce said: "I have every confidence in this squad, we are really looking forward to competing with the best under-21 teams in Europe, and hopefully, doing our country proud with our performances. It should be a fantastic tournament."
Walcott played a key role in England qualifying for a play-off tie to reach the finals before getting a call-up for the seniors and putting himself in the limelight with his hat-trick against Croatia in Zagreb.
Gabriel Agbonlahor has also featured for the seniors and he is going to Sweden with Pearce's youngsters, along with James Milner, Steven Taylor and Micah Richards.
Tottenham trio Tom Huddlestone, Jamie O'Hara and Aaron Lennon, however, are missing through injury.
Milner said: "Do I fear burn-out? I'm sure the manager will look after us. You need a rest. I've got six days before we join up with England. Then, if we reach the final, I've got another week.
"But it's an honour to play for your country and it's great to be going out there to Sweden to play with the best young players in Europe.
"Getting that experience is priceless. If you look at teams winning the World Cup and European Championships, so many of the squad have played in the Under-21s tournaments.
"It's getting that experience and winning mentality that helps. If we can win with the Under-21s, it stands us in good stead in the future as England players.
"Hopefully there will be a chunk of players who have been to a major international tournament and won it and that's massive. If you can then take that into senior tournaments, then you have better chance of winning those."
Jack Rodwell and James Tomkins were included but Blackburn's Matt Derbyshire is injured.
"Our main aim is to go to Sweden and win it," said midfielder Mark Noble.
"We aren't there to get to the semi-finals or anything. We think we have a good enough team to go there and win. If we do that it will be the icing on the cake for the season.
"James (Tomkins) fully deserves to get in. He's been fantastic."
England face Finland in the tournament opener in Halmstad on Monday June 15, before moving on to Gothenburg to meet Spain the following Thursday.
Pearce's side return to Halmstad to complete their Group B campaign against Germany on Monday June 22.
Group A consists of hosts Sweden, Italy, Belarus and Serbia. The semi-finals take place on Friday June 26, with the final in Malmo on Monday June 29.
England Under-21 squad: Joe Hart (Manchester City), Joe Lewis (Peterborough), Scott Loach (Watford); Martin Cranie (Portsmouth), Kieran Gibbs (Arsenal), Michael Mancienne (Chelsea), Nedum Onuoha (Manchester City), Micah Richards (Manchester City), Andrew Taylor (Middlesbrough), Steven Taylor (Newcastle), James Tomkins (West Ham); Lee Cattermole (Wigan), Andrew Driver (Hearts) Craig Gardner (Aston Villa), Adam Johnson (Middlesbrough), James Milner (Aston Villa), Fabrice Muamba (Bolton), Mark Noble (West Ham), Jack Rodwell (Everton); Theo Walcott (Arsenal), Gabriel Agbonlahor (Aston Villa), Frazier Campbell (Manchester United), Danny Welbeck (Manchester United).