Smith retired from international rugby in 2010 after winning 110 caps but has been on fire for the ACT Brumbies this year and looks likely to be named on Sunday in the preliminary Wallabies squad for the three-test series against the Lions.
Waugh, a combative flanker who would have won more than his 79 caps had he not had the misfortune to be playing at the same time as Smith, said he wanted his fellow 'thirtysomething' to start ahead of young guns Liam Gill and Michael Hooper.
"I won't be too black and white here but in all these big series, whether it's World Cups or British Lions series, I think it's really important to have age and experience in those teams," Waugh told Fox Sports.
"And George at 32, I think he's almost 33 now, he got man of the match in the third Lions Test in 2001 on his 21st birthday, all that stuff really matters.
"I think, for me, that George is going to be an integral part of the team."
Smith, who played in all three tests when Australia beat the Lions 2-1 in 2001, returned to the Brumbies on loan from Japanese club Suntory and worked his way back into Wallabies contention by the sheer quality of his play.
While his cause was undoubtedly helped when Brumbies team mate and Australia's first choice openside, David Pocock, was ruled out for the season by a serious knee injury, Smith has grabbed his opportunity with both hands.
"I think he's like all good flankers, and Richie McCaw is exactly the same, they read the game so well," Waugh said.
"You don't need to be the fastest or the fittest, it's who's got the ability to pre-empt where the ball is going to end up and predict the next breakdown or where the play's going to go.
"So I think it's very hard to train that sort of thing, I think it's instinctive and all good flankers have got that."
Smith comes up against Hooper when the Brumbies take on Waugh's old team, the New South Wales Waratahs, in Sydney in Super Rugby on Saturday.
Waugh said despite favouring Smith, he had been impressed by 21-year-old Hooper and 20-year-old Gill.
"I think they're developing really well," he said. "They're two pretty young guys and they're going to have a competitive rivalry for the next 10 or so years those two.
"Look, I think Hooper's got a terrific running game while Gill's work around the breakdown is exceptional.
"I see them as very different players and it's going to be very interesting to see over the next couple of weeks as to who go with and who's going to get the chance to face the Lions."
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