Nobody showing the love for William Saroyan yet? My Name Is Aram , The Daring Young Man On The Flying Trapeze, and The Human Comedy, all outstanding.
I’ll second the Garrison Keillor (Lake Wobegon Days, Leaving Home, Wobegon Boy) and the Dandelion Wine, and throw in Walking Across Egypt by Clyde Edgerton.
A Prayer for Owen Meany is a great book, but I hadn’t really thought of it as “small-town lit.”
I recommend Paris Trout by Pete Dexter. A gripping tale of racism and muder in a small Georgia town, post Word War II. It won the National Book Award in 1988. Terrific book, but not for the faint of heart.
Anything by Faulkner, if he’s your cup of tea. I like Salinas as portrayed in Steinbeck’s stuff. And Flannery O’Connor if you want closer to Florida small towns.