The 23-year-old half-back was suspended by Australian club Parramatta last year after allegations of drunken behaviour and was granted indefinite leave earlier this season due to a bipolar disorder.
Smith had stated his intention to remove himself from the spotlight Down Under and has now decided to resume his career in Super League.
The arrival of the ex-Australia schoolboy international, who had also been linked with Harlequins, will help fill the void at Wigan to be left by playmaker Trent Barrett at the end of the season.
Smith said: "I am really looking forward to joining the Wigan club and am grateful for the Warriors for giving me the opportunity to relaunch my playing career.
"My aim is to impress the management, coaching staff and fans and to win something with Wigan. My personal problems have been well documented but they are now behind me and I want to concentrate only on playing footy."
Smith, who has made 71 appearances in Australia's NRL competition, is expected to link up with his new club once his application for a work permit is approved.
Chairman Ian Lenagan said: "We acknowledge some risks - reflected in the contract - in signing Tim after his early-season illness difficulties, but Tim now feels ready to relaunch his rugby league career away from the Sydney media pressure.
"We believe the supportive and professional environment at the Wigan club is ideal to help him achieve this.
"He is a young player of outstanding talents who can add a new dimension to our attacking options and we look forward to seeing him in action with the Wigan club in the near future."
Wigan were recently linked with a move for their former scrum-half Michael Dobson from Canberra but the player has since opted for Hull KR.
Barrett will leave the JJB Stadium for Cronulla at the end of the campaign having been granted an early release for personal reasons. Tweet

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