Having dismissed the tourists for 264 in the opening session, Australia slumped to 16 for four as Pakistan's seamers produced their best spell of bowling in the series to bring the tourists right back into the game.
Marsh, though, was dropped in the slips by Abdullah Shafique on 20 and went on to fall agonisingly short of his fourth test century, steadying the ship with Smith and helping Australia to 187 for six at stumps.
"To get a test match 100 would have been nice but ultimately I just wanted to extend that partnership as long as possible," said Marsh.
"Our bowlers can bat and we've got a lot of faith in them and if we can sneak another 60 for a 300 lead in the fourth innings, it'll be a great couple of days."
Smith was dismissed for 50 with the final ball of the day, and Alex Carey (16 not out) will resume with a new partner on Friday, looking to blow out the lead and lay the platform for a victory that would seal the series with a test to spare.
Pakistan had blown a strong position on day two and even stiff tail-end resistance from Mohammad Rizwan (42), Aamer Jamal (33) and Shaheen Afridi (21) on Thursday morning did not inspire much confidence they could turn the match around.
Australia captain Pat Cummins (5-48) completed his 10th five-wicket haul to end the Pakistan innings three overs before lunch and hand his side a first-innings lead of 54.
Afridi (3-58) quickly made it appear extremely slender as he led a spellbinding display of swing and seam bowling from the Pakistan attack.
The seamer induced Usman Khawaja into an edge with the second delivery of the innings to send the Australia opener back for a duck and removed Marnus Labuschagne caught behind for four with the last ball before the break.
Australia went into lunch on 6-2 but the worst was not over for the home batsmen.
David Warner, playing his final test innings at the Melbourne Cricket Ground, edged a Mir Hamza delivery onto his own stumps and departed shaking his head with six runs to his name.
With the next ball, Hamza next produced the delivery of the match so far, which nipped in and went straight through Travis Head's defences to shatter the Australian's stumps.
All-rounder Marsh watched Hamza's hat-trick ball sail well wide of his off stump and set about rebuilding Australia's innings with former captain Smith playing a supporting role.
Marsh rode his luck when Shafique dropped a standard slip catch - as the fielder had with Warner in the first innings - but there were few chances after that, until Hamza produced another peach and Agha Salman a fine catch at first slip.
It was the second time Marsh had fallen just short of a century in the series after he was dismissed for 90 during Australia's 360-run victory in the first test in his home city of Perth.
