Smith, who is the league's all-time leader in sacks with 200, was inducted in a halftime ceremony at Ralph Wilson Stadium during Buffalo's game against the Oakland Raiders.
"In my heart and in my blood, I bleed red, white and blue," Smith said. "I am humbled and blessed by this honor."
Smith was the No. 1 overall pick in 1985 out of Virginia Tech, selected by a Bills team that finished 2-14 the year before. Buffalo went 2-14 again in Smith's rookie season, but started turning the corner in 1986 when Hall of Fame quarterback Jim Kelly and coach Marv Levy arrived on the scene.
Smith began to emerge as the league's most feared defensive player in that '86 season by collecting 15 sacks. Four years later, he racked up a team-record 19 sacks en route to helping lead Buffalo to its first ever Super Bowl appearance.
His lethal combination of speed, quickness, and brute strength gave opposing offensive coordinators nightmares as they prepared game plans specifically designed to combat his disruptiveness.
"I learned at a young age how to study film and break down the opponent," Smith said. "There was no cat-and-mouse game. I knew what they were going to do. I was consumed with leaving everything out on the field."
Following Buffalo's 1999 playoff loss to Tennessee, the Bills cut Smith, along with running back Thurman Thomas and receiver Andre Reed, in a salary purge. Smith signed with Washington, where he posted 10 sacks for the Redskins in his first year, then broke Reggie White's career sack record of 198 when he dumped New York Giants quarterback Jesse Palmer in the 13th game of his final season as a pro. He finished his career with 200 sacks, retiring following the 2003 campaign.
The 11-time Pro Bowler was twice named the AP's top defensive player, garnered the 1987 Pro Bowl MVP, and was named to the NFL's 1980s and 1990s All-Decade teams. He will be eligible for the Pro Football Hall of Fame in 2009.
Smith currently resides in Virginia Beach, where he runs his real estate development company.
The Bills' Wall of Fame is an honor created in 1980 to reward the team's former members, including coaches and administrators.