Smith was born in Orange County, California. Her reported date of birth varies, with sources noting as early as 1958 or 1959 or as late as 1965. As a child, she grew up in Villa Park, California and attended Villa Park High School. It was here that her high school English teacher, Zoe Gibbs, gave Smith the confidence to write.
Smith studied experimental psychology at the University of California, Santa Barbara. She later attended San Francisco State University to obtain teaching credentials.
Smith began her career as an elementary school teacher, but left in 1989 after three years to pursue writing.
Smith has said that she realized she wanted to be a writer sometime between kindergarten and first grade, "when a teacher praised a horrible poem I'd written", and she began writing in earnest in elementary school.
Her first book, The Night of the Solstice, written during high school and college, was published by MacMillan in 1987, followed by Heart of Valor in 1990. They sold poorly, as they were labeled for 9 to 11-year-olds and not for young adults, as Smith wanted.
The Vampire Diaries series was commissioned by Elise Donner, editor of Alloy Entertainment in 1990: Smith immediately wrote the scene when Elena, Bonnie and Meredith are decorating the gym and the heroine meets Damon (scene later included in the first novel), while, as for the other characters, she adapted those of The Garden of Earthly Delights, an adult book she was writing. She chose the setting of The Vampire Diaries in Virginia because she has family there and was inspired by the small towns and lifestyles.
Three trilogies followed: The Secret Circle (1992), The Forbidden Game (1994) and Dark Visions (1995). The first installment of Night World series was published in 1996, followed by eight more over the next two years.
In 1998, Smith began a decade-long hiatus from writing, returning in 2008 with a new website and a series of new short stories. The Vampire Diaries series was reissued in 2007, followed by reprintings of The Secret Circle trilogy and Night World series in 2008–2009. The Night of the Solstice and Heart of Valor were also reissued in 2008. Three new Vampire Diaries installments were published in 2009 and 2010. The series was later adapted into a TV series (The Vampire Diaries) in 2009, as well as The Secret Circle, which became a TV series of the same name in 2011.
The final volume of The Vampire Diaries written entirely by Smith (The Return: Midnight) was released in March 2011. Smith submitted a draft of the next installment (The Hunters: Phantom), but after a dispute regarding a pivotal plot twist, her involvement was terminated by the publisher and the episode was revised by a ghostwriter. Subsequent Vampire Diaries installments have also been ghostwritten. She was also replaced on The Secret Circle series, by ghostwriter Aubrey Clark.
Smith previously resided in Concord, California in 1991 and still resides in Northern California with her dog. In 1998, Smith took a decade-long hiatus from writing to take care of her sister's children when her brother-in-law was diagnosed with metastatic melanoma. During this time, her mother died from lung cancer. In late 2015, Smith was diagnosed with granulomatosis with polyangiitis.