Smith's departure was due to scheduling issues, noted The Hollywood Reporter. The actor never officially signed on to appear in the new film.
Deadline also confirmed Smith's exit from the villain-focused franchise.
Smith was introduced as Deadshot in 2016's Suicide Squad which also starred Margot Robbie as Harley Quinn, Jared Leto as The Joker and Viola Davis as Amanda Waller. The movie followed a group of villains put together to take on secret missions for the government in exchange for lighter prison sentences.
Gunn, best known for helming Marvel's Guardians of the Galaxy series, is writing and directing the new project which is titled The Suicide Squad. Gunn's version is described as a new take on the series. No castings have been announced.
Robbie, meanwhile, will be reprising her role as Harley Quinn in Birds of Prey (And The Fantabulous Emancipation of One Harley Quinn), which is set to arrive in theaters on Feb. 7, 2020.
Smith will next be seen as Genie is Disney's live-action remake of Aladdin, set to arrive in theaters on May 24.