The deal announced Thursday locks up Smith through 2014.
Smith was a little-known defensive coordinator at Jacksonville when he initially signed a four-year contract with the Falcons in 2008, taking over a team coming off a dismal 4-12 season that included star quarterback Michael Vick going to prison and coach Bobby Petrino leaving the team after just 13 games.
Atlanta quickly turned things around under Smith, going 11-5 and making the playoffs in his first season. The Falcons followed with a 9-7 mark - the first consecutive winning years in franchise history - and then went 13-3 this season, earning the top seed in the NFC playoffs.
They were routed by Green Bay 48-21 in the divisional round, but that did nothing to lessen the confidence of owner Arthur Blank. He moved quickly to keep Smith around another four years.
"When we hired Mike Smith in 2008, we believed we had found the total package: a head coach with strong leadership skills and experience and the track record to back it up, and a man of high character and integrity," Blank said in a statement. "In his three seasons with us, coach Smith has demonstrated all of these characteristics, and then some."
Smith has a cumulative record of 33-15, easily the best three-year coaching mark in franchise history. The only blemish on his resume is an 0-2 mark in the playoffs.
"I am looking forward to continuing to build upon the solid foundation we have in place within our organization and on our football team," Smith said. "We are going to continue to work as hard as we can to bring a championship to Falcons fans and to the city of Atlanta."