Mr Smith, had been acting chief executive since May following the departure of predecessor Ged Fitzgerald to Lancashire CC in February.
He will receive a basic salary of£170,000, a council spokesman said.
Mr Smith had been Sunderland City Council’s deputy chief executive since November 2005.
Council leader Paul Watson (Lab) said Mr Smith had done an excellent job as acting chief executive for the past six months and had passed a “rigorous selection process” with flying colours.
“We're delighted to have been able to offer him the job on a permanent basis,” he said.
“This is a major appointment which will have a significant impact on shaping the future of the city and the lives of its 280,000 residents.”
Mr Smith said he had thoroughly enjoyed his time as at the council to date and was pleased to be appointed chief executive.
“I'm very much looking forward to my new role, to working with partners, to improving the services we deliver to everyone in Sunderland and to building on the fantastic work that has gone before me,” he said.
Before moving to Sunderland, Mr Smith worked for a number of authorities including Liverpool City Council and Rotherham MBC.