The Chiefs started the season 5-0 but have lost four straight and six of the past seven. Peters will not be paid his standard game check and will not be allowed to practice either.
Peters was penalized for throwing a penalty flag into the stands after the Jets' two-point try with 2:15 left in the game.
The playcalling switch has paid immediate dividends as Smith has thrown touchdown passes on each of the Chiefs' first two drives in the first quarter Sunday with both scoring passes going to star tight end Travis Kelce.
According to multiple sources, the Chiefs have suspended Peters for one game because of his actions during the team's 38-31 loss to the New York Jets in Week 13. The ensuing skirmish featured a unusual turn of events when Raiders running back Marshawn Lynch ran in from the sidelines to "defend Peters". Peters had been flagged for unsportsman-like conduct but was not ejected.
On Tuesday, Reid said he was still "evaluating" whether Peters would be disciplined for the incident. The culmination of events came the first time the Chiefs played the Raiders when Peters landed an unnecessary hit on quarterback Derek Carr. He later returned, but obviously, his behavior irked the Chiefs.
After Reid announced he was mulling over punishment for Peters, the point was delivered clearly on Wednesday incidental behavior would no longer be tolerated.