McCoist to take reins at Rangers in 2011
Smith will stay in charge at Ibrox for one more year before handing the reins over to his current deputy McCoist. Smith, McCoist and first-team coach Kenny McDowall had all been working without contracts since January.
"I am wholly committed to managing the club next season and when it comes to the end of next season I firmly believe that Ally and Kenny would do a great job and I am glad eveybody at the club shares that view," Smith said in a statement on Rangers' website.
"We have big challenges ahead, on and off the field, but we are all Rangers men at heart and are looking forward to going for a third league title in a row and playing in the Champions League."
Former Scotland and Everton boss Smith, in his second spell with Rangers, has led the Glasgow side to back-to-back Scottish titles.
Former Scotland striker McCoist, 47, is Rangers' all-time leading goalscorer with 355 goals in all competitions, featuring in all nine of the club's successive title wins between 1989 and 1997.