The injury occurred in the third quarter of the Ravens' victory over the San Diego Chargers on Sunday as the wideout made a cut while running upfield with the ball.
The 36-year-old was assisted off the field by the club's medical staff, and head coach John Harbaugh confirmed after the game that Smith would be out for the rest of the campaign.
Smith revealed before the season that the 2015 campaign would be his last before retirement, which would mean the injury would end his career, although Harbaugh is optimistic that the veteran will have a change of heart.
He told reporters: "Steve Smith did tear his Achilles tendon and he is out for the rest of the season.
"He's hurting. I love him, respect him, admire him. I told him that. That's the kind of man he is, and he'll be back."
Smith recorded 46 receptions for 670 yards and three touchdowns in seven matches this season.