According to Morpheus, the tutor of the protagonist Neo, Smith is an Agent, an artificial intelligence manifested in the artificial world and possessing extraordinary powers to manipulate his surroundings (including superhuman strength and the ability to flawlessly dodge incoming bullets). However, Agents still have limitations, being "based on a world that is built on rules". Thus, he cannot fly, walk through walls, or perform any other actions outside the boundaries of his programming. Like all Agents in the Matrix, he was originally programmed to keep order within the system by terminating troublesome programs and human avatars which would otherwise bring instability to the simulated reality. To expedite such tasks, he and other Agents have the ability to take over the simulated body of any human that is a part of the Matrix, converting it into a copy of their own. If that body is killed, or an Agent needs to change his location quickly, he can assume the shell of any other human hard-wired to the Matrix in a matter of seconds. Agents also have the ability to communicate with each other instantaneously, represented via their earpieces (thus, when Agent Smith removes his earpiece during the first Matrix movie, he is severing his link with the other agents).

Agent Smith appears to have been destroyed by Neo at the end of the first movie in the Matrix trilogy, but he makes a calculated return in The Matrix Reloaded with somewhat altered abilities and motivations, in addition to dropping the title "Agent". His appearance has changed from the first movie as well — his sunglasses are of a different, more angular shape than the square ones the Agents wear and his suit is now black instead of dark green: physical signs of his connection with Neo. Smith also lacks the earpiece most Agents wear on their right ear, showing he is now "unplugged". Smith loses his ability to phase into any body connected to the Matrix at will, as he is no longer a part of the system. Instead, Smith is now infectious through touch; by jabbing his hand into the body (The Stomach) of another being in the Matrix, a Smith can convert that being into another Smith, replicating himself in much the way a computer virus might.

• Although Smith gains the power to copy over Agents, in truth Smith only copies the body the Agent was possessing at that time. The program of the Agent can move to another body, as demonstrated in The Matrix Reloaded.

• It may also be that in place of the normal power of the Agents to leap into any shell connected to the Matrix, that Smith has the ability to enter the shell, although permanently now.

• Smith is also able to copy over redpills, something regular Agents cannot do. When he does copy over redpills, he can inhabit their physical bodies when he jacks out of The Matrix, as in the case of Bane. Fortunately, most redpills were in Zion at the time of Smith's return, making Bane the only one possessed by Smith. However, Smith was nearly successful when he attempted to absorb Niobe and Ghost, two other redpills in Enter the Matrix. Like Neo, they were able to repel the attack and managed to elude Smith.

• Keeping in the theme of machines, Smith's behavior is very similar to a computer virus, which also copies its programming into or over other files. This is somewhat fitting — Smith notes in The Matrix he considers human beings a "virus", and in the process of becoming more human, Smith has also become a virus. In a bizarre irony, he becomes what he hates most about humans: something which consumes all resources before moving on and acting without reason or logic.