The 39-year-old Smoltz is the only player who was a member of the Braves in all of the Braves' National League East titles since 1991.
"John has been a constant for this organization, both with his pitching and leadership, and our plan to exercise this contract option for next season was never in question," said General Manager John Schuerholz in a release. "I had a conversation with John (Wednesday) in Washington and officially notified him that the Braves were going to exercise the option on his 2007 contract."
Heading into Thursday night's game at Colorado, the 18-year veteran was 13-9 this season with a 3.71 ERA in 32 starts and 211 innings.
Smoltz and Hall-of-Famer Dennis Eckersley are the only pitchers ever with at least 150 wins and 150 saves in their careers.