Smith, 33, told the Sunday Times newspaper that he knew he had made the right decision while at the hospital bedside of his 18-month-old daughter, who had suffered burns from hot water.
He says the toddler reached out to him and touched his Proteas badge.
"That's all she's known of me really."
"She sees me on the TV and that was a moment where I realised I'm pretty happy with the decision I've made," he said.
"I'll have more time to see my children grow and I'll be mentally more there."
Smith is the most capped Test captain in the history of the game with 9,262 Test runs at an average of 48.49 with 27 hundreds and 38 half-centuries.
He has captained the Proteas for 12 years since the age of 22.
"As a captain, even when you are at home your brain is still elsewhere a lot of the time," he said.
"I won't be picking up a bat for that country. I won't be playing for Ireland."
"If am going to play for anyone, it would be the Proteas," he said.
He said breaking the news of his decision to his team was difficult, and he struggled to get his words out.
"After I'd said my piece, I had to get out and get some fresh air because I was a bit of a wreck."
"I think of her with the two kids travelling to wherever I am in the world, and making it work. She is a strong woman.
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