Yes, another example of why it would be nice to have context. Also, "in" is not the best literal translation beause of 의 which changes it to what is known as the "genitive" case in some languages. It is often used to show possession in Korean, or, as in this situation, to mean "of." A more accurate translation might be, "I'm afraid of the forest tiger. " or "I'm scared of the tigers of the forest /woods.
"In" is the best translation here because it says "숲 속의 호랑이," and "속" means "inside." So, if you break down the meaning of each particle, what it says is "the tiger (호랑이) of (의) the inside (속) of the forest (숲)," or, more idiomatically, "the tiger in the forest.
If it had just said "숲의 호랑이," then you would be correct.
In this case, 솦 속 is describing the tiger, so 의 is used. Think of it as "the tiger of inside the forest." By saying 솦 속에, it would be a location particle for the whole sentence, thereby modifying the verb, 무서워해요. This would mean that my being afraid is happening inside the forest, which in English would be something more like "In the forest, I'm afraid of the tiger." Because the original English sentence implies that the tiger is inside the forest, rather than my fear being inside the forest, it has to be 솦 속의 to modify the word 호랑이.