Williams, who has won 21 Grand Slam singles events, was halted in her bid to tie the long-standing mark at the Australian Open in January when she was upset in the final by Graf's fellow German Angelique Kerber.
But Graf expects Williams to come roaring back this year.
"I'm very sure that she will (break the record)," Graf told AFP in an interview. "To be honest I think we all believe that she can, and that she will soon."
"Have I accepted it?" she laughed. "I gave everything to tennis and I feel great about what I have achieved," added Graf, now a mother of two living with husband Andre Agassi and their two children in Las Vegas.
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"I follow it somewhat but this is somebody else's chance and I'm happy for them. It doesn't take anything away from what I have achieved. I'm completely at ease."
Graf completed a memorable calendar-year grand slam in 1988, capturing all four major titles plus a gold medal from the Seoul Olympics for good measure.
"Her serve is just the biggest stroke ever in women's tennis," said Graf, who split her only two meetings against Williams at the end of her career in 1999.
"There's nothing that's ever been close to that kind of power. And just to see her athleticism -- nobody has ever shown that in the sport. Hopefully it's going to bring a lot of other players out who have that kind of power and can make the breakthrough."
Graf, however, does not fear that the power-hitters will put the shot-makers out of business just yet.
"When you look at Angelique Kerber, she isn't physically such a force either. But they use the court and they use different shots so I think (finesse) is still out there.
Graf, visiting Tokyo to promote a junior tournament run by
Roland Garros, declined to comment on the failed drugs test by Maria Sharapova when she spoke to AFP late on Tuesday. Williams has praised the "courage" of the Russian, who could be facing a lengthy ban.
Graf did, however, tip Kerber for more grand slam success after her Melbourne triumph.
"I was pretty aware of the talent and her capabilities. She was pushing for many years and I always felt like the confidence held her back a little bit. But I felt like she was on the right track, like it was a matter of time."
Graf added: "I think she can add to this because she's very comfortable on all surfaces. Right now all she has to do is stay with it and just believe she can do it. I think that's what the Australian Open win is going to do for her -- just to believe more and more and she will see even more results.