Imperative

Yes, I believe the sentence is correct.

As Little Sage says, this is absolutely fine grammatically (all negative imperative verbs use Don't) but out of context sounds a bit odd.

Something can be grammatically correct but not possible in specific contexts. So you always need to specify what the context is.

Here "look" describes appearance - so you need a context where the people are discussing appearance rather than feelings. For example, it would be fine in the following context...

Someone is participating in a training course to improve her performance as a sales representative. She has been filmed participating in a simulation of a meeting with a client. Afterwards, she and the trainer watch the video and the trainer says:
Notice that you look very nervous. Try and look more confident - don't look shy.
The trainer is concerned with how she appears to the client - not with how she might actually be feeling.

Now take a different context. A little child has just started kindergarten and is sitting in a corner looking unhappy. The teacher is clearly worried about how he is feeling, and might say : Come on - come and play with the others. Don't be shy.

So yes, your sentence is grammatically correct, but may or may not be appropriate in a given context. It depends on the meaning that the speaker wants to convey.