On October 15, 2016, Smith re-signed with the Cavaliers. After a contract stalemate that had consumed nearly the first three weeks of training camp, Smith and the Cavaliers reached an agreement on a four-year deal worth $57 million. On November 1, in a win over the Houston Rockets, Smith hit his 344th three-pointer, passing Damon Jones for ninth place on the team's all-time list. On November 18, he hit three 3-pointers against the Detroit Pistons to move past Dirk Nowitzki into 15th place on the NBA's career list for 3-pointers. On December 13, Smith, having been in a season-long shooting slump, scored 17 of his season-high 23 points in the first half of the Cavaliers' 103–86 win over the Memphis Grizzlies. He came into the game shooting a career-low 31 percent from the field and 32 percent on 3-pointers, the lowest mark since his rookie season with New Orleans. He finished the game with 8-of-17 from the field and 6-of-10 on 3s, passing Dale Ellis (1,719) for 14th on the career three-pointer list. On December 20, in a win over the Milwaukee Bucks, Smith suffered a fractured right thumb that required surgery. Three days later, he was ruled out for 12–14 weeks. He made his return to the line-up on March 9 against the Pistons. Smith helped the Cavaliers go 12–1 over the first three rounds of the playoffs to reach the NBA Finals for a third straight season. There the Cavaliers faced the Warriors, but lost the series in five games.