Smith initially joined the French outfit in 2011 as a Moto2 rider before making the move up to the premier class in 2013.
The 23-year-old achieved three sixth-place finishes last season and has continued to show promise in the current campaign.
Indeed, Smith qualified on the front row for the opening race of the season in Qatar and sits ninth in the world championship standings after the first 10 rounds, finishing fifth at the Grand Prix of the Americas and sixth at the Indianapolis GP behind team-mate Pol Espargaro.
But Smith still feels he has plenty of improvements to make after securing his immediate future with the team.
Smith told Monster Yamaha"s official website: "It's difficult to explain exactly how I feel right now but I am just overly thankful to Yamaha and [team manager] Herve [Poncharal] as well as the whole Monster Yamaha Tech3 team for believing in me and enabling me to continue riding here for another year. "For me personally, it's now time to start achieving and performing at my full potential, which I don't believe we have seen yet. I know that with this team they can support me to get where I am capable of being and beyond.
"In addition, riding with Pol [Espargaro] is great fun as it creates a strong atmosphere in the team and together we are very competitive which aids us in pushing as well as motivating each other in every session. "For Pol and I to finish fifth and sixth at Indy is back where Monster Yamaha Tech3 deserves to be and everyone can expect more of the same in the next 18 months. I am very happy and look forward to the rest of the season as well being very excited for 2015."
Meanwhile, MotoGP's rights holder, Dorna Sports, announced on Wednesday a 10-year agreement with the Circuit of Wales to host the British round of the championship until 2024.