The functional consequences of local and global dynamics can be very different in natural systems. Many such systems have a network description that exhibits strong local clustering as well as high communication efficiency, often termed as small-world networks (SWN). We show that modular organization in otherwise random networks generically give rise to SWN, with a characteristic time-scale separation between fast intra-modular and slow inter-modular processes. The universality of this dynamical signature, that distinguishes modular networks from earlier models of SWN, is demonstrated by processes as different as spin-ordering, synchronization and diffusion.