The deal was announced before Wednesday's game against Cincinnati. It had been in the works since before general manager Josh Byrnes was fired on June 22 and it came together in the last few days.
Smith will make $6 million in 2015 and $6.75 million in 2016. The Padres hold a $7 million option in 2017, or a $250,000 buyout.
Smith is making $4.5 million this year. He was obtained in an offseason trade with Oakland.
The Padres started the day in third place in the NL West at 37-47, 10 1/2 games behind San Francisco. The Padres haven't had a winning season since 2010, when they won 90 games and still missed the playoffs. Since then San Diego has had seasons with 91, 86 and 86 losses.
They're on their third ownership group since 2009 and the new general manager will be the third since Kevin Towers was fired late in the 2009 season.
''I wouldn't have signed if i didn't think we could win now,'' Smith said. ''I think this season has been tough but there's still a lot of season left, there's still a lot of good players here.
''I've been to the playoffs four times and all four times no one thought any of the teams would make the playoffs,'' added Smith, who reached the postseason twice with Colorado and twice with Oakland. ''Ownership's committed to winning and that's what I'm all about. That was my first question: 'Are we going to try to win and try to win now?' And the answer was. 'Yes.' So I was like, 'I'm in.'
Assistant GM A.J. Hinch said talks were ''tricky'' because of Byrnes' firing, but added that Smith's desire to stay with San Diego and ownership's commitment helped overcome that. Hinch is one of three people running the ''office of the GM'' until the Padres hire a replacement for Byrnes.