The 24-year-old is coming off a career-best season that saw him score 14 goals and 26 points in 81 games. His game also includes some edge, as evidenced by 98 penalty minutes.
Smith is now under contract to Ottawa through the 2016-17 season.
"It's hard to find good young NHL players and when you get them, you want to make sure you have them for term if at all possible," said Senators GM Bryan Murray. "It allows us to have another good young player to build around."
A third-round pick in 2008, Smith has appeared in 152 career games for the Senators. He also helped the organization's American Hockey League team in Binghamton win the Calder Cup in 2011.
The signing comes less than a week after centre Kyle Turris signed a five-year extension of his own with Ottawa for $17.5 million.