When rain forced an early end to play on the first day in Pallekele, Australia were 66 for two, with skipper Smith (28) and his partner Khawaja (25) ramming home the advantage forged by their bowlers.
No play was possible after tea due to rain, prompting the umpires to call stumps at 4:15 pm. Play will resume on Wednesday at the earlier time of 9:45 am to make up some of the overs lost by the weather.
The downpour in Pallekele cast a further gloom over the Sri Lankan side after they recorded their lowest total at the picturesque ground, undone by a combination of Australian pace and spin.
Sri Lankan captain Angelo Mathews decided to bat first on what began as a sunny day, but Australia made early inroads as they reduced the hosts to 84 for five at lunch. They only needed a further 6.2 overs in the second session to finish off the batting line-up, with the wickets evenly spread between their fast bowlers and spinners.
Mitchell Starc, returning after eight months of injury, drew first blood for the visitors when he trapped Dimuth Karunaratne lbw for five in the fifth over, prompting the opener to call for an unsuccessful review. Josh Hazlewood, bowling with pace and variety, then trapped Kusal Mendis lbw for eight and had Kaushal Silva caught at first slip by Adam Voges for four.
In his second spell, he had vice-captain Dinesh Chandimal caught from behind by wicketkeeper Peter Nevill 10 minutes before lunch. Left-arm spinner Steve O’Keefe claimed the prized wicket of Mathews, caught at first slip by his opposite number Smith.
Debutant Dhananjaya de Silva scored a battling 24 but only four other Sri Lankans made it into double figures.
Even though he only bowled three overs, Nathan Lyon took three Sri Lankan wickets to vindicate Smith’s decision to pick both him and O’Keefe —who picked up two scalps in only his third Test.
Both have been working with Sri Lanka’s record-breaking spinner Muttiah Muralitharan in the build-up to the series and his influence appeared to be paying early dividends. Australia however were soon in trouble themselves, losing both their openers cheaply.
Vice captain David Warner went for a duck, surviving for just four deliveries before dragging Nuwan Pradeep onto the stumps after being out of action for six weeks with a broken left index finger. Joe Burns made only three before being bowled by the veteran Rangana Herath, leaving Australia wobbling on seven for two.
Australia have a poor recent away record against teams from the sub-continent but went into this series as firm favourites after clinching top spot in the Test rankings.