Smith has had a major impact in Super Rugby this season after returning to ACT Brumbies.
The 110 Test veteran has proved he is still a menace at the breakdown and possesses the skills to operate at the top level.
And Foley, who faced the Lions alongside Smith 12 years ago and went on to become Wallabies assistant coach, reckons he should be picked by Robbie Deans.
"George Smith in my mind is still probably one of the top-two No.7s in world rugby," said Foley.
"I'd love to see him be considered for Wallabies selection.
"His current form and the type of player he is puts him right at the top of the tree."
Smith extended his loan deal with the Brumbies earlier this month and is understood to have held talks with Deans.
He remains under contract with Suntory, and would need clearance from the Japanese club to face Warren Gatland's tourists.
But he has already been given permission to play the entire season with the Brumbies and has indicated he would not turn down the Wallabies.
Young flankers Michael Hooper and Liam Gill are also in the running but Foley reckons Smith's vast experience would be an invaluable asset.
"Test match rugby is all about making the right decisions consistently throughout the game," said Foley.
"The difference between a Test match player and a provincial player is not necessarily skill; it's mental.
"It's the ability to withstand pressure, and under that pressure make very good decisions.
"Experience gives you the benefit of that."