Mr Smith, who led the Conservatives between September 2001 and November 2003, is the highest profile political figure to be recognised.
He receives the honour for political and public service.
It comes after Mr Smith held on to his Chingford and Woodgreen seat during December’s election vote, securing 23,481 votes.
As well as his stint leading the Conservatives, he has held a number of high-profile roles, and was a major figure behind the controversial Universal Credit system.
His last cabinet role was as secretary of state for work and pensions, between 2010 and 2016.
An ardent Brexiteer, as a backbencher he was a leading light in the Tory European Research Group, which proved to be such a thorn in the side of Theresa May.
Another MP, Robert James Macgillivray Neill, known as Bob Neill, will also be knighted for political service.
Mr Neill, 67, represents Bromley and Chislehurst.
He was previously leader of the Conservative Party in the London Assembly.
Labour MP Diana Johnson, who campaigned on behalf of victims of the NHS contaminated blood scandal, is made a dame.
The senior Labour MEP Claude Moraes, a long-standing campaigner for refugees and on justice and civil liberties issues, is made an OBE.