Fans flocked to Oxford in their thousands to see the beginning of a new chapter in the club's history under Smith and new chairman Nick Merry.
The gate was 3,000 up on Oxford's average home attendance and the whole atmosphere was different following the departure of the club's previous owner Firoz Kassam, who had been hounded out by supporters.
N'Toya, who was only signed on Thursday, on loan from Chesterfield, smashed home a low angled shot midway through the second half and then celebrated with a spectacular cartwheel and backflip.
Defeat seriously damaged Peterborough's play-off hopes, but only three top-class saves from Mark Tyler prevented the U's winning more easily.
Smith included from the start three of his five loan transfer-day signings with Italian Andrea Guatelli in goal and Southend's Jay Smith in midfield joining N'Toya.
N'Toya looked lively and was involved in a superb three-man move involving Barry Quinn and Matt Robinson.
But it was Posh who had the first serious effort of the match, Guatelli turning an angled 20-yard drive from Jamie Day around his post.
Peterborough defenders appeared to stand still when Andy Burgess picked out Chris Willmott from a corner, but the defender's volley was blocked.
In a scrappy first half, the best chances invariably came from set plays and when Leo Roget headed down Burgess's free-kick, Tim Sills volleyed wide.
It took a great piece of defending by Peterborough centre back Mark Arber when the U's threatened just before the break.
Chris Hargreaves picked out Burgess with a defence-splitting pass, but Arber bust a gut to reach Burgess's low cross before Sills, and injured himself in the process as he flung himself into the goal.
Posh striker Richard Logan had to go off injured before half-time, James Quinn replacing him.
Tyler produced two stunning saves in the space of four minutes to keep Peterborough on level terms.
He showed great reactions to turn over substitute Steve Basham's close-range header after Roget had headed on.
And moments later came an equally spectacular stop as he turned Jay Smith's 20-yard shot away for a corner.
With 13 minutes to go, Guatelli was booked for handling outside the area after Quinn tried to flick the ball away from him with Peterborough players were furious that the keeper wasn't sent off.