This paper introduces the concept of Smart Images and explains the use of watermarking technology in their implementation. A Smart Image is a digital or physical image that contains a digital watermark, which leads to further information about the image content via the Internet, communicates ownership rights and the procedure for obtaining usage rights, facilitates commerce, or instructs and controls other computer software or hardware. Thus, Smart Images, empowered by digital watermarking technology, act as active agents or catalysts which gracefully bridge both traditional and modern electronic commerce. This paper presents the use of Digimarc Corporation's watermarking technology to implement Smart Images. The paper presents an application that demonstrates how Smart Images facilitate both traditional and electronic commerce. The paper also analyzes the technological challenges to be faced for ubiquitous use of Smart Images.