Yes, there is good fishing in the Townsend area. A lot of it. If you want easy fishing you can go for stockers in Townsend, just be careful not to fish on private property.
What I prefer is to go after the wild trout in the Smokies. The closest place to Townsend will be up above Tremont. Here you can fish Middle Prong, Lynn Camp Prong, Thunderhead Prong, and Sam's Creek. Middle Prong is along the road, the others require a little hiking, but not much. This time of year, it is better to go into the higher elevations where the water is cooler.
As for what is biting, check out the fishing report Byron puts up every day on this website. Also stop in the shop while you are there, not only will the staff help you out and make suggestions on where to go and what to use, there will probably be someone in the shop who has been in the water recently and will make suggestions. (Like the staff.)