Smith was part of New Zealand's coaching set-up when they won last year's World Cup and while the NZRU are determined to keep him, England have identified him as a replacement for Andy Farrell through to the 2015 World Cup.
Lancaster met Smith, who has taken a coaching role with the Super Rugby Waikato Chiefs, in South Africa recently and said he was impressed with what the 55-year-old former All Blacks fly-half had to offer.
"For me, there is one stand-out candidate - Wayne Smith," Lancaster told BBC Radio 5 Live on Friday. "Wayne has got a lot to offer from a coaching point of view, in terms of experience, the southern hemisphere, and he has been in World Cups.
"I met him and had a real good chat with him. He was excited by the vision I presented to him about where we were going as a national team.
"Clearly the lure of international rugby is a strong one for him. He enjoyed his time at Northampton, he enjoyed his time in England. It was a really, really enjoyable conversation. He has some decisions to make of his own."
Smith, a former coach of top English side Northampton, said on Friday he had been offered a hands-on role in Lancaster's new England set-up but NZRU chief Steve Tew said the organisation would do everything they could to keep him in the country.
"We consider Wayne to be an incredible asset to New Zealand rugby, not just the All Blacks but New Zealand rugby full stop," Tew said after an NZRU board meeting.
"He has worked incredibly hard on behalf of this organisation for an extended period of time so he has earned our respect to make whatever decision he wants to make and we are certainly not going to leave him without options, but we are desperately keen to keep him in New Zealand.
"He is one of our intellectual properties. He has been with us for so long and been such an important contributor to developing things that work in our environment that we think he is a special case to protect," added Tew.
"He has achieved an enormous amount as a coach and he loves coaching and he loves a challenge... We are dead keen to find a solution but there is no easy one."
Smith has an exit clause in his Chiefs contract and if he were to leave New Zealand, it would probably not be until the end of the Super Rugby season in August.
The All Blacks have an end-of-year tour to Europe with a match scheduled against England on Dec. 1, and Smith said that could be a factor in his decision.
"Having put the last eight years of my life into coaching the All Blacks and trying to win the World Cup, I'm going to have to search inside myself to see whether I could coach a team against them," Smith said, adding that he hoped to make a decision over the next 10 days.
"It's not just going to any team, it's going to a team that over time will potentially challenge the All Blacks, so I've got to be clear in my mind that I could be a part of that."
Lancaster played down suggestions that Smith could become England's head coach with himself as director of rugby.
"The role for Wayne is the same as what Andy did. I would keep doing my role as head coach. I would set the overall framework of how we are going to play and then coaches within the coaching team would work on that detail."