After agreeing terms with the Club this morning Smith linked up with his team mates for the first day of pre-season training before inking his new contract at stadiummk.
Smith spent five months on loan with the Dons last season and was a valuable influence both on and off the pitch. His five-year contract with Newcastle United expired in the summer and as a result Dons boss Karl Robinson made the former Leeds United and Manchester United star his number one target.
The 31-year-old, who scored two goals in 18 appearances for the Dons last year, had numerous offers but has unfinished business at stadiummk and is determined to see the side clinch promotion to the Championship.
Smith said: "When I came here last year I felt part of what the Club were trying to achieve.
"I made it clear I wanted to stay. There were quite a few other clubs in higher divisions that were interested in me but I think for me, in this stage of my career, I've come to the perfect place. What I hope for now is two years where I can commit to MK Dons, give everything that I've got and do everything in my power to help us win promotion to the Championship."
Boss Robinson added: "Alan Smith signing gives us great versatility whether it is in midfield or up front, and he is a tremendous character in the dressing room. It's a big signing for us. He turned down a number of other clubs to come to MK Dons and I think he will be a great asset for us."