Lost circulation can be a very serious problem while drilling especially in naturally fractured formations. Lost circulation may have serious safety consequences and heavy financial costs in the form of losing mud fluid to the fractures, wellbore stability issues and losing rig time while dealing with the problem. Despite recent advances, lost circulation materials used in the field still have disadvantages such as plugging tools due to the large size of the particles, damaging production zones and failure to minimize lost circulation when heavy mud columns exists in the annulus. In this work, we introduce a new class of “Smart Lost Circulation Materials” to effectively seal the fractures and minimize lost circulation by increasing hoop stress. Our smart LCMs are made out of thermoset shape memory polymers which are activated upon exposure to the formation's in situ temperature that causes expansion and acts as an effective seal for the fractures. The physical properties of our smart lost circulation materials prevent damage to production zones and tool plugging. In addition, the expansive property of the smart LCM provides compressional forces that strengthen the wellbore by artificially reducing the fracture gradient. We conducted a series of experiments using a HPHT particle-plugging apparatus (PPA) to measure the sealing efficiency of the smart LCMs. In addition, a fully coupled CFD-DEM model is developed to further study the effectiveness of various particle size distributions and the corresponding stress release to improve the design of this product.