No, it doesn't sound correct so we need a hyphen to join the words world and famous: He is a world-famous singer.

What qualifies something as world-famous?

Someone or something that is world-famous is known about by people all over the world.

Does small town need a hyphen?

Use a hyphen to combine adjectives with nouns to create an adjective. For example, That is due to small-town politics. Here, small-town is used as an adjective even though it contains a noun (town). However, the phrase, "I live in a small town," does not need a hyphen.