The Welsh winger got his first goal for the Red Devils after coming off the bench against Chelsea on Sunday.
James got the fourth goal in a 4-0 win at Old Trafford, with his deflected effort sealing the points for United.
And Southall believes his fellow Welshman can reach the very top of the sport.
"[Daniel James] is playing like a kid with no fear and if he can carry it on, he'll be fantastic," Southall told VoucherCodes.co.uk.
"At the moment he is sort of naive, but he's gone in and he's done what he needed to do. I think if he can carry on playing with freedom like Ryan [Giggs] did, then I think he'll be great.
"It is really good that he has a manager like Ryan at Wales. I think he'll be the type of player that Old Trafford give a standing ovation to because he's positive and he's quick.
"It's going to be interesting with Wales, as he becomes more prominent and with Gareth [Bale] being 30-odd, the roles might reverse. At the moment he is one among many and once you become like Ryan [Giggs] or Gareth [Bale], you have to deal with the other stuff football throws at you and it's whether he will be up to the challenge.
"If he can become the main man and deal with everything thrown at him then that will be great for Wales and great for Manchester United and to be fair it would be great for football."