NFL Network insider Jason La Canfora first reported details of the deal, which includes a club option for a fourth year, according to a team source. The deal includes roughly $18 million in guaranteed money, a source with knowledge of the situation told La Canfora.
"The Panthers wanted to try to lock him down for the future and Steve is simply ecstatic about being able to finish his career in Carolina," his agent, Derrick Fox, said. "He loves playing for coach Ron Rivera is excited about the things to come in Carolina. A lot of L.A. guys want to get back to the West Coast, but Steve and his family love living in Charlotte."
Fox said the ability to play for coach Ron Rivera was a key factor in his client's decision to return.
"He just loves playing for Rivera," Fox said. "That is a huge difference. He knows that Ron knows what it takes to win. He's a winner and Steve has recognized that."
Panthers general manager Marty Hurney acknowledged Smith's age is a concern, but he feels like the veteran will continue to prove he's still a valuable player.
"There aren't a lot of receivers who play up into their upper 30s, but if anyone can do it it's Steve," Hurney said. "His work ethic and his desire and his competitiveness are what set him apart from everyone else. He knows he's getting older. But he works so hard to keep himself in top condition. He knows with every year he has to work harder and harder. He's just so competitive."
This is the third time the Panthers have extended Smith's contract without him becoming a free agent.
After signing his rookie deal on June 19, 2001, Smith signed his first extension on March 1, 2007 just days before he was to hit the free-agent market.
However, he quickly outperformed that deal and the Panthers gave him a new six-year, $45 million extension on May 4, 2007. Smith's current contract was set to expire after this season.
"Steve has been a difference maker at receiver for us since he's been here," Hurney said. "It's always good to keep your core players. We felt like Steve made it very clear that he wanted to finish his career as a Panther. We're glad he did."
The Panthers have a called a news conference for later Tuesday.
Smith is coming off a resurgent 2011 season in which he caught 79 passes for 1,394 yards and seven touchdowns, helping quarterback Cam Newton immensely in his rookie year.
Smith, who turns 33 in May, has spent all 11 seasons of his career with the Panthers.
Follow Jason La Canfora on Twitter @JasonLaCanfora.
The Associated Press contributed to this report.