The 22-year-old Australian began the third and final day of the Brisbane tournament, which was shortened to 54 holes due to torrential rain, level with Smith at 10-under-par.
Left-hander Smylie held his nerve with a bogey-free 67 to finish at 14-under while playing in the final group with his idol, who carded 69 for outright second.
Smylie, the son of former tennis Grand Slam doubles champion Liz Smylie, was a recipient in 2019 of an annual scholarship run by Smith, who flies two Australian juniors to the United States to spend a week learning and practising.
He said Brisbane had been an unforgettable week.
"It's life-changing for me and I can't wait to get started," he said after securing two years' worth of status on the DP World Tour.
"I won't forget this day playing with Cam and Leish.
"They are guys I've grown up watching on TV and have idolised. It was just a dream come true."
Smith's fellow LIV Golf star Marc Leishman tied for third at 11-under with Anthony Quayle, who equalled the tournament-low score of 63.
It was the biggest win of Smylie's career after securing his first professional victory at last month's Western Australian Open.
Smylie and Smith both made opening-hole birdies but Smith stumbled with three front-nine bogeys and dropped another shot at the 14th.
In contrast, Smylie bagged four birdies in the opening seven holes before riding his short game and hot putter to 11 straight pars.
"I think it would have been a different story if (I hadn't) had three bogeys on the front nine and two of them were three-putts that followed very decent shots into those greens," Smith said.
Three-time tournament winner Smith made a late charge with a fifth birdie of the day at the 15th and another when he chipped in at the par-three 17th to come within two.
Moments later, Smylie pulled his drive on 18. But from behind a tree, he hooked an iron shot into a greenside bunker and made a gutsy par to win.
"As soon as I hit that bunker shot to three feet, I was like, yeah, that's the winning shot," he said.
The DP World Tour continues at next week's co-sanctioned Australian Open in Melbourne before heading to South Africa and Mauritius in December.
