Toulon's Halfpenny, 27, has started at full-back in the autumn internationals against Australia and Argentina, with Wales to host Japan on Saturday.
Williams says Scarlets' Liam Williams should move over to full-back instead.
"I used to enjoy playing on the opposite wing to Leigh and he used to score a lot of tries and create a lot of opportunities," Williams said.
"For that reason I'd love to see Leigh back on the wing.
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"Liam Williams is playing with such confidence at the moment you could put him in any position and he would still perform."
Liam Williams missed Wales' defeat to Australia through injury but started on the wing and scored his side's first try in the win over Argentina last Saturday.
Wales host Japan in their third game of the autumn series at Cardiff's Principality Stadium, with interim coach Rob Howley considering resting players.
Howley has hinted Ospreys wing Keelan Giles could win his first senior cap against Japan and Shane Williams believes the 18-year-old should be given his chance.
"I think a game against a team like Japan would suit Keelan," said Williams, who has been inducted into World Rugby's Hall of Fame.
"I think it will be an open game and probably more chances and room for him to create than there would have been against Australia and Argentina.
"Perhaps it's time Wales take the shackles off him and let us see what he can do.
"He's a great players that's only going to get better."
Wales' record try-scorer Shane Williams wants to see Leigh Halfpenny starting back on the wing.