Scot Muir, 23, has already broken the European 3,000m and British 5,000m indoor records this year, and also took Holmes' British 1,000m indoor record.
Holmes, who won Olympic gold in both the 800m and 1500m at Athens in 2004, has been impressed by her displays.
"Laura has already taken the world by storm," she told Scottish Athletics.
"She truly can go all the way in the sport - and by that I mean start to medal at major championships."
Muir will attempt to win her first major medals at this week's European Indoor Championships in Belgrade, where she will run in both the 1500m and 3,000m.
She will then switch her attention to her main target this year - the World Championships, which take place in London from 4-13 August.
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Speaking to BBC Scotland last month, Muir said she viewed a "home World Championships" as "big", especially having seen the impact of the 2012 Olympics in London.
Holmes said: "Laura first came to my attention when she was fifth at the World Championships in Beijing in 2015.
"She is an unassuming girl in some respects, but you can see she is a very strong runner."
Holmes added Muir had shown she can run fast but must now "translate that by racing well on the world stage".
She added: "Championships are all about placings and, at only 23, Laura has already taken the world by storm.
"I believe that, in 2017 at the World Championships, she can cement her place in history."
Holmes believes young Scots - particularly girls - can look to the likes of Muir, Eilidh Doyle, Lynsey Sharp and Eilish McColgan for inspiration.
"Role models are important in society generally, but role models from the world of sport I believe have the most credibility - especially if you are trying to inspire girls and women," she added.
"Scotland have had some amazing talent in the past and it looks like it is continuing."
Muir, the 2016 Scottish Athlete of the Year, will begin the final year of her five-year veterinary studies a week after the World Championships, continuing to combine them with her running career.

In the three months to February, sales volumes fell by 1.4%, a sharper slide than the 0.5% decline for the three months to January.
That was the biggest three-month fall recorded by the Office for National Statistics (ONS) since March 2010.
Fuel prices in February were 18.7% higher than a year earlier.
"February's retail sales figures show fairly strong growth, though the underlying three-month picture shows falling sales as February's figures follow two consecutive months of decline in December and January," said ONS statistician Kate Davies.
"The underlying trend suggests that rising petrol prices in particular have had a negative effect on the overall quantity of goods bought over the last three months."
Petrol cost an average of 120p a litre in February, with diesel 3p more, according to ONS figures.
However, the 1.4% rise in retail sales in February was higher than the 0.4% increase expected by economists.
News of the month-on-month increase sent the pound higher above $1.25.
Paul Hollingsworth at Capital Economics said the figures would give some reassurance that higher inflation had not brought growth in consumer spending to a halt.
Inflation as measured by the Consumer Prices Index jumped to 2.3% in February - up from 1.8% in January, the ONS said on Tuesday.
However, Howard Archer at IHS Markit said consumers were becoming more cautious as higher inflation squeezed their purchasing power.
"The economy's persistent resilience since last June's Brexit vote has been largely built on consumers keeping on spending," he said.
"With consumers now seemingly moderating their spending, the long-anticipated slowdown in the economy looks set to materialise unless other sectors can make significantly increased contributions."
Fashion retailer Next said on Thursday it was "extremely cautious" about trading for the coming year as it reported lower annual profits.
Martin Beck, senior economic adviser to the EY ITEM Club, said annual shop price inflation increased from 1.9% in January to 2.8% in February - a 60-month high.
"How the year pans out will depend heavily upon consumers' willingness to draw on savings or take on more debt," he said. "Last year's retail boom looks set to become an increasingly distant memory."
Laura Muir can "cement her place in history" by winning a medal at the World Championships this summer, says ex-Olympic champion Dame Kelly Holmes.
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UK retail sales posted a 1.4% rise in February from the previous month, but there are signs that higher fuel prices have begun to hit shoppers' pockets.