"We've all made stupid comments at stupid times, unfortunately his stupid comment became global news," Norman said Monday. "I know he probably regrets saying it, but I guarantee you in that room on that night there was probably some heavier things said."
Williams' disparaging comment came during a caddies' awards party Friday in Shanghai.
Norman added that Williams' current employer, Adam Scott, should ignore calls to release him. Scott has said he will stand by Williams.
Norman had Williams on his bag for several years in the 1980s. He replied "no, not at all," when asked if Williams was racist.
Norman spoke from The Lakes, where he'll begin play in the Australian Open on Thursday.
Scott said in a statement Monday he believes "there is absolutely no room for racial discrimination in any walk of life, including the game of golf."
"I have discussed this matter directly with Steve and he understands and supports my view on this subject. I also accept Steve's apology, knowing that he meant no racial slur with his comments. I now consider the matter closed. I will not be making any further comment."
Woods and Scott are also playing in the Australian Open, which has attracted a strong field because of the Presidents Cup at Royal Melbourne next week.
Norman disagreed with possible, but extremely unlikely, moves to pair Woods and Scott this week in Sydney for the first two rounds of the Australian Open. It was also suggested to Norman, the captain of the International side for the Presidents Cup, that he might send Scott out against Woods in the team event in Melbourne.
"Of course, everybody wants to see it," Norman said. "I don't think it's the right thing to do from a promotional aspect, No. 1, because it should just be an automatic draw. I don't think there is any issue between Tiger and Adam at all."
Norman said any feud between Woods and Williams needs to be sorted out.
"Because of the temperature that was going on between the two of them, anything that is said or not said is going to exacerbate whatever that feeling is," Norman said. "I hope it gets resolved. Golf doesn't need it. Golf needs Tiger back playing great golf like he used to. Golf needs the cohesiveness that's always existed.
"There's always been underlying currents, not everybody loves everybody and the people who dislike each other; we just have a tendency of parting our ways and not seeing each other. But to have it play out like it's played out has been a bit sad for the game."
Asked if racism is a problem in golf, Norman said he's "never seen it at all."
On Monday, Woods was in Melbourne, where he last won a tournament — the Australian Masters in November 2009. Weeks later, news of his infidelities surfaced, followed by a divorce, injuries and swing changes.
Woods spoke to a Melbourne radio station whose interviewers were told not to ask questions about Williams. Woods flew back to Sydney later Monday. He'll have a news conference at The Lakes on Tuesday when he's expected to respond to Williams' remarks.
Woods told the Melbourne station he's seeing a gradual improvement in his game.
"I've had a ruptured ACL (anterior cruciate ligament), I've had a broken leg, a torn Achilles and strained ligaments over the last five years," he said. "I've been rehabbing for so long I haven't been able to train. I'm hitting faster, more explosive, my speed's come back. I'm hitting the ball distances I know I can hit the golf ball again. It's getting fun."
Woods played at the private Capital Golf Club with cricket great Shane Warne, Warne's fiancee and English actress Liz Hurley and billionaire businessman James Packer.