The 21-year-old defender put pen to paper on a deal until the summer of 2016, with Huddersfield also having the option to extend that by a further year if they wish to.
Smith, who joined the West Yorkshire club last summer from Manchester City, has made 13 starts in the Championship this season.
"Signing the contract signals the start of a new chapter in my career; I am just getting going," he told the club's official website.
"I want to continue progressing and moving up and for me this is just the beginning. Although it is only two years, it is still the longest contract that I have signed and I am looking forward to settling down and playing to the best of my ability.
"I am very proud of what I have achieved. It was a brave decision to leave Manchester City and go in search of first team football, but having signed the contract I feel vindicated."
Smith's previous contract was due to run out at the end of this season.