In 1965, he received his bachelor's degree in electrical engineering from New Mexico State University. He created his first computer graphic in 1965 at NMSU. In 1970 he received a Ph.D. in Computer Science from Stanford University, with a dissertation on cellular automata theory jointly supervised by Michael A. Arbib, Edward J. McCluskey, and Bernard Widrow. His first art show was at the Stanford Coffeehouse. From 1969 to 1973 he was an associate professor of Electrical Engineering and Computer Science at New York University, under chairman Herbert Freeman, one of the earliest computer graphics researchers. He taught briefly at the University of California, Berkeley in 1974.
While at Xerox PARC in 1974, he worked with Richard Shoup on SuperPaint, one of the very first computer paint programs. Smith's major contribution to this software was the creation of the HSV color space, also known as HSB. He created his first computer animations on the SuperPaint system.
In 1975, Smith joined the new Computer Graphics Laboratory at New York Institute of Technology, one of the leading computer graphics research groups of the 1970s. That is where he met Ed Catmull who would be his partner for many years. The group now known as Pixar began there, working alongside a traditional cel animation studio. There he worked on a series of newer paint programs, including the first 24-bit one (Paint3); as part of this work, he co-invented the concept of the alpha channel. He was also the programmer and collaborator on Ed Emshwiller's pioneering animation Sunstone, included in the collection of the Museum of Modern Art in New York. He worked at NYIT until 1979, and then briefly at the Jet Propulsion Laboratory with Jim Blinn on the Carl Sagan Cosmos: A Personal Voyage television series.
With Ed Catmull, Smith was a founding member of the Lucasfilm Computer Division, which developed computer graphics software, including early renderer technology. While there, as director of the Computer Graphics Project, he created and directed the "Genesis Demo" in The Wrath of Khan, and conceived and directed the short animated film The Adventures of Andre and Wally B., starring the animator John Lasseter for the first time.
He and Ed Catmull co-founded Pixar on February 3, 1986 with financing from Steve Jobs. After the spinout from Lucasfilm of Pixar, he served on the board of directors and was executive vice president. According to the Steve Jobs biography iCon by Jeffrey S. Young and William L. Simon, Alvy Ray quit Pixar after a heated argument with Jobs over use of a whiteboard. It was an unwritten rule that none other than Jobs was allowed to use it, a rule Smith decided to break in front of everyone after Jobs went "total street bully" on him and they ended up screaming into each other's face "in full bull rage". Despite being the co-founder of Pixar, Young and Simon claim that the company has largely overlooked his part in company history since his departure. For example, there is no mention of Smith on the Pixar website.
He was for four years (1988–1992) a member of the board of regents of the National Library of Medicine in Bethesda, Maryland, where he was instrumental in inaugurating the Visible Human Project.
In 1991, Smith left Pixar to cofound Altamira Software Corporation, with Eric Lyons and Nicholas Clay, which was acquired by Microsoft in 1994. He became the first Graphics Fellow at Microsoft in 1994.
He retired from Microsoft in 1999 and is currently giving many talks, making digital photographs, doing scholarly genealogy, and researching technical history. He lives in Seattle, Washington. Since 2010, Smith is married to Alison Gopnik, the author and Professor of Psychology at the University of California, Berkeley.
With his collaborators, Smith has twice been recognized by the Academy of Motion Picture Arts and Sciences for his scientific and engineering contributions, to digital image compositing (1996 award) and to digital paint systems (1998 award).
In 1990, Shoup and Smith received the ACM SIGGRAPH Computer Graphics Achievement Award for their development of paint programs.
He presented the Forsythe Lecture in 1997 at Stanford University, where he received his PhD in 1970.
His undergraduate alma mater New Mexico State University awarded him an honorary doctorate in December 1999.
He was inducted into the CRN Industry Hall of Fame at the Computer History Museum in Mountain View, CA in 2004.
In 2006, Smith was elected a member of the National Academy of Engineering.
In 2010, Smith was elected a Fellow of the American Society of Genealogists and presented the Washington Award in Chicago for advancing "the welfare of human kind".
In 2011, Smith was awarded the Special Award at Mundos Digitales in La Coruna, Spain, for lifetime achievement in computer graphics.
In 2012, Smith was awarded the Digital Media Symposium Lifetime Achievement Award in Boulder, Colorado, and was awarded a plaque in the Circle of Honor at New Mexico State University.
In 2013, Smith was elected a fellow of the American Association for the Advancement of Science.
Smith has been the recipient of several grants from the National Science Foundation and the National Endowment for the Arts during his career.