In the American Civil War he served the Confederate States of America as a volunteer; he was named Commander of the Texas Marine Department[a] under General John B. Magruder.

[3][7] A mariner from the age of 13, by the time he was 20 Smith was in command of the United States mail steamship Pacific that sailed between San Francisco and Panama.

On April 18, 1861, Smith and his ship assisted Colonel Earl Van Dorn in the capture of Star of the West (notable for being the target of the first shots of the civil war on January 9, 1861, in Fort Sumter) off Matagorda Bay via trickery: pulling alongside her under the pretense of transferring "friendly" troops which were expected from the transport Fashion.

On 7 November 1861, Smith and the General Rusk extinguished the fire aboard the stricken Royal Yacht following her encounter with USS Santee, and towed her back to port.

[20] After no signal came after midnight passed, Smith pulled back from the harbor to Red Fish Bar, a point fourteen miles away.

Hearing the attack commencing at 04:00, Smith directed the naval contingent back to the harbor, probably reaching it an hour after the initial shots were fired.

[6][22] Though still outnumbered, Smith demanded the surrender of US fleet from commander William B. Renshaw, who had run aground aboard the USS Westfield.

Turning around back to the bay, Smith captured three small Union ships (the Cavallo, Elias Pike, and Lecompte) with their cargo.

[3][2] Following the battle, the Confederate States Navy sent Lieutenant Joseph Nicholson Barney to take charge of naval operations in Galveston, including the captured Harriet Lane.

Barney later explained that he made his recommendation since he considered that the presence of two separate marine forces with independent commanders would lead to discord and confusion.

Smith immediately ordered all Confederate troops in Beaumont, some eighty men, aboard the steamer Roebuck and sent them down the river to reinforce Fort Griffin.

[3][36][37][38][39] From November to December 1863, he was sent by Magruder to direct the naval side of the defense of Indianola, Texas, where Colonel William R. Bradfute was commanding the land forces.

Smith commanded John F. Carr, Cora, and eleven small vessels with sharpshooters and artillery; however disagreements with Bradfute were a hindrance to operations.

[3] In the summer of 1864, due to better land fortifications and the developing state of the war (most Texas troops were transferred to Louisiana in March), the marine contingent was less needed and Smith was relieved from duty at his request by Captain Henry S. Lubbock (the brother of governor Francis Lubbock and who had been the captain of CS Bayou City (Smith's flagship) in the Battle of Galveston)[41] who commanded the marine department sub-district at Galveston.

Following a news report in the Houston Daily Telegraph that Smith was going to be sent to London to acquire a fast steamboat for privateering, that was reprinted by New York papers, Federal authorities attempted to disrupt the alleged scheme.