Smart told ESPN.com of his decision in a text message Wednesday. VCU later issued a statement announcing that changes in Smart's contract are being finalized.
"We're extremely thankful for the tremendous belief shown in us by Dr. Rao, Ed McLaughlin and VCU," Smart said in a statement Thursday. "We're also incredibly appreciative of the phenomenal fans that support our program and university. We are very excited about the challenges that lie ahead and the student-athletes that we have the pleasure of working with on a daily basis. Our goal will always remain to progressively move our student-athletes forward on and off the court."
A source confirmed to ESPN.com that Smart will sign an extension to stay with the Rams through 2023. SI.com earlier reported news of the extension.
"Coach Smart has demonstrated through this process that he is loyal to VCU and his greatest concern lies with our program moving forward every year," VCU director of athletics Ed McLaughlin said in a statement. "Our goal was to present him with a revised agreement proactively rather than wait for another institution to step in with an offer.
"I believe we accomplished our goal."
Smart's contract is already scheduled to run through 2020. A year ago, he decided to stay at VCU instead of going to Illinois.
Smart led VCU to the Final Four in 2011 in his second season at the school and as a head coach. He had his contract restructured afterward, signing an eight-year deal on April 4, 2011, with his financial payout going to more than $1.2 million.
He led the Rams to the NCAA tournament both in 2012 and this season, reaching the third round in each of the past two seasons.
VCU, which moved from the CAA to the Atlantic 10, finished second in each conference the past two seasons.
A number of Smart's good friends in the coaching profession, from whom he sought counsel the past week, told ESPN.com that they didn't believe Smart would leave.
Smart loves coaching at VCU, relishing his "Havoc" style in Richmond that has been wildly received.
VCU should be one of the premier programs in the A-10 going forward with the departures of Butler and Xavier to the new Big East in 2013-14.
Meanwhile, sources said Minnesota has now turned its attention to Iowa State coach Fred Hoiberg and Butler's Brad Stevens as candidates to replace Tubby Smith.
ESPN.com college basketball reporter Dana O'Neil contributed to this report.