The 26-year-old fly-half has agreed a new deal which could keep him in Wales until the 2019 World Cup.
Williams, who played 100 times for Wales, believes it will help Ospreys keep and recruit players.
"It's fabulous news for Welsh rugby and the Ospreys in particular," he said on BBC Wales' Scrum V TV programme.
"Not only is Dan committing himself to Wales for the next four years, but it helps the Ospreys with recruitment for the next couple of seasons.
"If players were looking to sign and come to the Ospreys if they can see Dan Biggar is going to be there for the next three or four seasons that helps them as well."
Biggar's current deal was due to expire at the end of this season.
He is the first of Wales' 17 dually contracted players to re-sign on the deals which are 60% funded by the WRU and 40% by the region.
In addition to potentially attracting new players to the region, Biggar's decision to stay may help negotiations with his Ospreys and Wales colleagues scrum-half Rhys Webb and second row Alun Wyn Jones.
Both players' contracts expire in the summer of 2016, with Ospreys skipper Jones saying in November that he was still weighing up his options.
Scarlets are in talks with Wales centre Scott Williams over extending his dual contract, and have secured the return of British and Irish Lions centre Jonathan Davies from Clermont Auvergne next season.

Alexander Young crashed his Iveco Daily van into Andrew Nisbet's parked car on 25 November 2015.
Mr Nisbet, 58, suffered fatal injuries when he was struck by his own vehicle
Young pled guilty to a careless driving charge at Livingston Sheriff Court. The collision happened on the B7066 Whitburn Link Road near Polkemmet Country Park.
The court was told that Mr Nisbet's car was parked with its hazard warning lights flashing when the accident happened.
Young, 62, of Airdrie, North Lanarkshire, admitted failing to observe Mr Nisbet's car and colliding with it.
Police said at the time that the van driver had suffered only minor injuries in the crash.
Mr Nisbet, from Sauchie, Alloa, was married with a family.
He was described him as "a much loved husband and father" who would be sorely missed.
Dan Biggar's decision to renew his national dual contract is "fabulous" news for Wales and Ospreys, according to Martyn Williams.
[NEXT_CONCEPT]
A van driver who crashed into a stationary car, fatally injuring its driver, has admitted careless driving.