Liverpool fighter Smith, 27, said after his victory over Predrag Radosevic earlier this month that he was hopeful of a bout with the Mexican.
Alvarez's last fight was against Amir Khan in Las Vegas, with the 25-year-old winning by sixth-round knock-out.
"To headline in America is a dream I've had since I started," said Smith.
"This fight will allow me to make a name for myself in the US and show the Americans and Mexicans just how good I am.
"My next goal was to make my name across the Atlantic and this is the big stage that will enable me to do that against the biggest name in world boxing."
At present no venue has been announced for the fight.
WBO light-middleweight champion Liam Smith will face WBC middleweight title holder Saul 'Canelo' Alvarez in America on 17 September.