On 5 January 2007, press outlets reported that Rangers had spoken to Smith with a view to hiring him to manage Rangers again, with Ally McCoist as assistant manager. The Scottish FA initially rebuffed Rangers' approach for Smith, but his return as Rangers manager was announced on 10 January 2007. He succeeded Paul Le Guen, who had left the club by mutual consent after Rangers had been knocked out of the 2006–07 Scottish League Cup by First Division side St Johnstone and fallen 17 points behind Celtic in the 2006–07 Scottish Premier League; caretaker manager Ian Durrant (who had previously played under him) was retained on the coaching staff.