Queens thought they had edged ahead after quarter of an hour when Chris Higgins headed in a Chris Mitchell free kick however an offside flag cut short their celebrations. The Doonhamers then found themselves in the unusual position of going behind when Sean Dickson sliced open their defence and Smith ran through to shoot home on 28 minutes.
The equaliser came a minute from half-time when Mitchell found the top corner with a free kick from 25 yards.
Both sides missed chances after the restart before Stenhousemuir went ahead again 18 minutes from time when Jamie Reid crossed from the right and Dickson netted with a header.
Nicky Clark missed a late chance for Queens, who need four points from their last two games to set a new Second Division points record.
Stenhousemuir: C Smith, Devlin, Ross, McKinlay, McMillan, Hodge, Reid (Corcoran 90), Rowson, Gemmell, Dickson (Kouider-Aissa 82), D Smith. Subs not used: Brash, Summers, Shaw.
Queen of the South: Robinson, Mitchell, Holt, Black, Higgins, Slattery, Carmichael (Smith 87), McKenna, Lyle, Clark, Paton. Subs not used: McGuffie, Fitzpatrick, Orsi, Atkinson.
Referee: C Charleston. Attendance: 504.