✨ ベストアンサー ✨
Yes, it is also correct. The following are all correct, with only small nuances in meaning:
✅ This town is known not only for <X> but also for <Y>.
✅ This town is known for not only <X> but also for <Y>.
✅ This town is not only known for <X> but also for <Y>.
✅ This town is not only known for <X>, but it is also famous for <Y>.
Google:
"known for not only its" -> 1.660.000 hits
"known not only for its" -> 1.710.000 hits
"not only known for its" -> 2.510.000 hits
Your teacher will probably prefer "is known not only for" because it sounds the most formal.