Smith worked with the Gunners on a temporary basis during the second half of last season and has now returned on a permanent deal.
The former striker, who scored 130 goals in 156 appearances for Arsenal, will primarily be working with the squad’s attacking players.
Kelly had three spells at Arsenal during her illustrious playing career, winning five league titles, five FA Cups and the Women’s Champions League.
She also scored 46 times in 117 appearances for England and represented Great Britain at the 2012 Olympics in London.
“I grew up an Arsenal fan and was fortunate enough to play for the club for a number of years, so I’m delighted to be back in this capacity – it’s a dream come true for me to be back in this environment,” Smith said.
“I’m really excited to be working with the attacking players in the squad and I want to draw on my experience both at Arsenal and across the game to contribute to us achieving our goals together.”