The Mumbai duo bettered the previous best of 159 by Chennai Super Kings' Michael Hussey and Murali Vijay in IPL-4.
Smith slammed 87 off 58 balls while Tendulkar scored a 51-ball 58 to help Mumbai chase down the target of 163 with two overs to spare at the Sawai Mansingh stadium.
With their place in the playoffs already assured, the win will be a huge morale booster for Mumbai going into the eliminator against holders Chennai.
Image: Rajasthan Royals cricketer Owais Shah (R) congratulates Mumbai Indians batsman Dwayne Smith (C) as their teammate Sachin Tendulkar looks on during the IPL Twenty20 cricket match between Rajasthan Royals and Mumbai Indians at the Sawai Man Singh stadium in Jaipur on May 20, 2012. Mumbai Indians won by 10 wickets.