Catt, who won 75 caps for England and started the third Test for the Lions against the Springboks 15 years ago, will be in place in time for England's June tour of South Africa.
The 40-year-old World Cup winning centre, who also played fly-half and full back, had initially been lined up for an interim role on the summer trip south.
New Zealand veteran Smith had been the favourite to join England's set up on a permanent basis once his contract with the Chiefs ran out at the end of the Super 15 campaign but the 55-year-old has chosen to stay in Waikato.
Having helped guide the All Blacks to World Cup glory in 2011, Smith had been described as part of the 'vision for the future' by Lancaster, who had seemed ready to move into a director of rugby role with Smith to be named head coach.
Smith spoke publicly of the approach last week and had suggested only the moral dilemma of coaching a team against the All Blacks would stand in his way of a return to the UK after a previous stint with Northampton. But now Smith appears to have cited family reasons in his decision not to accept the post.
Critics will claim Catt is the third-choice for the post after both Smith and Andy Farrell, who was part of Lancaster's team in the recent 6 Nations, opted out of the quest to make England World Cup contenders in 2015.