The terms of the contract weren't disclosed, but the Arizona Republic reported it was worth approximately $34 million.
"We are pleased to sign Mike to a multi-year contract," Coyotes General Manager Don Maloney said. "Mike has emerged as a top NHL goaltender with his size, athletic ability and strong work ethic. He is capable of leading us to a Stanley Cup championship, the goal of our franchise."
Smith, 31, anchored the team last season despite struggling with injuries, posting a 15-12-5 mark with a 2.58 goals-against average, .910 save percentage and five shutouts over 34 games.
He was also a key component in the 2011-12 season when Phoenix reached the Western Conference finals.
Negotiations between the sides stalled at times, leading to speculation he could become a much-coveted free agent.
"I always felt in the back of my mind I was going to re-sign with Phoenix, but I didn't know," Smith told the Republic. "Obviously, you look around the league at different positions where you see yourself fit but, in the end, I think Phoenix has been too good to me."