Smith returned to management on 8 October 2001 with Wrexham on a two-year contract, replacing Brian Flynn who had resigned after 12 years in charge, with the club 23rd in the Second Division. He was tasked with keeping the club steady whilst it struggled with financial problems. He decided to cut back on the club's youth coaching spending, and as a result Wrexham's youth structure was downgraded from an Academy to a Centre of Excellence. He signed goalkeeper Marius Røvde, midfielder Jim Whitley, and gave striker Hector Sam his debut, but failed to keep Wrexham away from the relegation zone. With relegation confirmed, new signing Lee Jones scored all five goals in a 5–0 win over Cambridge United, leaving cause for optimism at the Racecourse Ground.