Smith made a return to management with Oxford on 10 September 1993, and the following day led them to a 4–2 victory over his former club Bristol City. A victory over another former club, Stoke, took Oxford off the bottom of the Second Division, but a sequence of just 2 wins in 17 matches left them in great danger of relegation. He signed goalkeeper Phil Whitehead on loan from Barnsley, signed striker John Byrne (£50,000 from Millwall) for the third time in his career, and then made what he later said was the best signing of his career by bringing in defender Matt Elliott from Scunthorpe United for £170,000. Oxford were boosted by these arrivals and briefly exited the relegation zone, also claiming an FA Cup giant-killing over Leeds at Elland Road after Jim Magilton scored the winning goal in extra time. However, after the match Magilton moved to Southampton for a £600,000 fee. Oxford had struggled in the league during their FA Cup run and were 15 points short of safety with 16 matches to play, but were aided by £60,000 signing Paul Moody, who, despite arriving in February 1994, managed to finish as the club's top-scorer with 12 goals in 15 appearances. His arrival kick-started the club's fightback, and Oxford closed the 15 points gap in just 9 matches. However, a difficult run-in left Oxford needing to beat Notts County on the last day of the season and hope results elsewhere went their way, and though they beat County their relegation rivals also claimed victories and Oxford were relegated.