Smith was furious with the former Liverpool and West Ham central defender, after he was sent-off for the second time this season in the draw at Crewe last weekend.
Ruddock was dismissed for dissent, and although he denies swearing at the referee, Smith has demanded that the 32-year-old changes his attitude starting in Tuesday night's delayed Worthington Cup quarter-final at home to Sunderland.
The Eagles boss has also insisted that the experienced defender starts living up to his status as Palace's most senior player and helps the side.
"Neil is 32 and he needs to be a bit careful," said Smith. "I have been very supportive of him since I have been here but he has now had two sendings-off in a short time. Both have been totally unnecessary.
"Neil has come to the time in his career when he has to take more responsibility.
"All he has won is one League Cup and one England cap - but he is a far better player than that.
"Now he has the opportunity to lead this young team into a cup semi-final and hopefully promotion.
"At his age he is not just in it for the money. He is at the latter end of his career and he will soon be thinking 'what have I achieved?'
"All the young kids here look up to him. He's a character, he's on A Question Of Sport and we all love his sense of humour.
"But that's not enough. He must set an example on the pitch.
"I don't want to lose his fighting character but he's at his best when he keeps cool," added Smith.