Last summer, Smallwood agreed to make the switch to Ewood Park from Rotherham United and the former Middlesbrough trainee was an ever-present as the club earned promotion from League One.
The North-West outfit were keen to secure a longer deal for the 27-year-old, and Rovers have now announced that the player has extended his stay until 2020.
Smallwood told the club's official website: "It took a bit longer than what I thought it would, but I'm really pleased to get it signed. It was an easy decision and there wasn't really a time where I had to think about it. It was about when I was going to sign, not if.
"It's been unbelievable here and everything's gone to plan for me personally and us as a team. We had a great season and it was as I expected because I knew the quality we had in the squad and I knew we could get out of the division."
Smallwood has previous experience of second-tier football with both Boro and Rotherham.