The two sides meet at the Emirates on Sunday in what is likely to be a key game in this season’s title race.
The Foxes are currently the surprise leaders in the Premier League after their 3-1 defeat of Manchester City last weekend put them five points clear at the top.
The Gunners are third in the table, having reinvigorated their title push with a win over Bournemouth, and Smith says a win over Claudio Ranieri’s side could be crucial for them.
"Arsenal have got to make sure they're at it for the big occasions, and this is a huge occasion," he told Sky Sports.
"It could be a defining moment of their season. If they can come through it, then they're going to have great confidence for the reminder of the season.
"Bournemouth was a must-win game. They had lost their confidence, belief, and momentum, so that's got them back on track and a win on Sunday would get them more firmly back on track."
Arsene Wenger’s side will be confident of securing a win given how they did against Leicester City earlier in the season.
That encounter saw the Gunners come out a 5-2 winners in one of the best games this season, and they will feel that could be the blueprint for further success this weekend.
If they can win, it is sure to be a huge boost to their title hopes, especially given how easily rivals Manchester City were dispatched last time around.