Smith's contract was due to expire in June, but he has been granted an early release from his deal and will return to Australia for family reasons.
The 48-year-old was in his second spell with Irish, having first been director of rugby between 2005 and 2008 before returning in 2012.
However, Irish have struggled during his second stint and a narrow 28-26 victory over Exeter Chiefs on Sunday was just their fourth of the Premiership campaign.
"My family has to be my priority right now which is why I have asked to be released from my contract early," Smith told the club's official website.
"I have thoroughly enjoyed my 10-year association with London Irish and will look back on my time with fond memories."
Forwards coach Glenn Delaney will act as interim head coach until the end of the season.