Smith's agent, Mark Bartelstein, says the deal is worth $7.5 million.
Smith played for the Hornets last season, averaging 4.3 points and 3.1 rebounds in 14.3 minutes per game. His best game came when he scored a career-high 20 points against Washington in the one of the six games he started.
He was a backup for most of last season at both the power forward and center spots.
The 25-year-old Smith is entering his fourth NBA season out of Colorado State.
Bartelstein says Smith had a number of options, but likes coach Monty Williams' staff and appreciates the individual work Hornets coaches put into developing his game last season.