Julian Falconer, the lawyer for Smith's family, said Justice Department lawyers have withdrawn submissions that had been seeking to restrict the scope of the inquest and its ability to issue summonses outside of Ontario.
"The Smith family and other parties have received the following statement from counsel for the Department of Justice: Canada is withdrawing its submissions regarding the scope of the inquest and the issuance of out-of-province summonses," Falconer said in an email.
The screening this week of one disturbing video that shows guards duct-taping Smith and drugging her against her will prompted Prime Minister Stephen Harper to criticize correctional authorities for unacceptable behaviour.
On Friday, Candice Bergen, parliamentary secretary to Public Safety Minister Vic Toews, told the House of Commons that Correctional Service Canada had been ordered to stand down.
"What we’ve instructed CSC to do is co-operate fully with the coroner’s inquest," said Candice Bergen, parliamentary secretary to Public Safety Minister Vic Toews.
"That was our instruction and that’s what we expect them to do."
Government lawyers had been fighting to keep a series of videos involving Smith under wraps and to block scrutiny of what happened to Smith in prisons outside Ontario.
There are still hours of videos that remain unseen by the inquest, but Bergen offered no clues as to whether they will be released.
"We expect full co-operation," Bergen said in response to a direct question about the videos. "That’s what we want to see.
"This has been a tragedy. What we’ve seen in the videos is completely unacceptable. Obviously, CSC is working to make changes but this is an important inquest so we want to see CSC co-operating fully with the coroner."
Smith choked to death as guards looked on in October 2007 at a prison in Kitchener, Ont. She spent the last year of her life in segregation, shunted among prisons in five provinces
Liberal MP Ralph Goodale said he hopes the government lawyers will now back away from trying to limit the investigation to the events in Ontario.
"The whole point here is that there was a pattern of behaviour, going on over a long period of time, some of it within federal jurisdiction, some of it within provincial jurisdiction, that led to some very dire consequences for this mentally ill young woman," he said.
"To say you can compartmentalize that as if it were some kind of constitutional conference is just absolutely ludicrous."
The investigation followed a plea by her family to the RCMP that Smith had been restrained and given anti-psychotic and other drugs against her will without any legal or medical justification.
The RCMP, claiming it had no jurisdiction, passed the complaint to Quebec provincial police, who investigated three incidents in July 2007 at the federally-run Joliette prison in Montreal.
Prison authorities gave the investigating officer access to Smith's administrative file and surveillance videos, some of which were shown at the inquest into her death on Wednesday, but not to her medical file, according to documents made available by the family.
The provincial police report found authorities used force on Smith "when she behaved contrary to regulation."
The Smith family also asked Waterloo regional police for a criminal-negligence probe over management directives to guards at the Grand Valley prison in Kitchener where Smith died.
No charges were laid as a result of that request.
Guards were ordered not to enter Smith's segregation cell to remove any ligature around her neck unless she stopped breathing.
The result was Smith choked to death while guards did nothing.
Goodale said the correctional service would be wise to come clean with the whole record now that people have seen some of the video.
"There seems to have been an attitude here to hush it up, cover it over, sweep it under the rug, hope it will all pass by," he said.
"With the publication of the videos in the public domain, Canadians have seen now at least a part of what was being hidden from them. They did not like it and I think Canadians will demand that there be complete transparency here."