The party will be held at the home of Tricia Barnstable Brown, who hosts an annual Kentucky Derby-eve party packed with celebrities. Smith and Dannielynn's father, Larry Birkhead, met at the 2003 party.
Brown said Birkhead, a Louisville native, asked her to host the party.
"They met at my Derby party here at my home," Brown said Saturday. "Now Larry is bringing Dannielynn in from L.A. to celebrate her first birthday party."
The catered party will have elaborate decorations and hot-air balloons, Brown said.
Smith gave birth to Dannielynn in the Bahamas on Sept. 7. Her 20-year-old son, Daniel, died three days later at her hospital bedside from a lethal combination of drugs.
Stern claimed to be Dannielynn's father, but DNA tests proved last spring that Birkhead is the father. Birkhead is now raising Dannielynn.