The 30-year-old had been at Kenilworth Road since 2012 and had been the longest-serving player in the League Two club's squad.
The former Forest Green Rovers and Swindon Town man made 128 league starts for the Hatters.
He is available for Stevenage's League Cup trip to Millwall on Tuesday.
Luton boss Nathan Jones told the club website: "With the players we were bringing in for this season, we felt we couldn't give (Smith) the kind of game time he needs. To be fair to him, we made him available to enable him to progress his career elsewhere."
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Stevenage have signed Luton Town midfielder Jonathan Smith after the Hatters agreed to cancel his contract by mutual consent.