Abstract Smoking as a major risk factor for morbidity affects numerous regulatory systems of the human body including DNA methylation. Most of the previous studies with genome-wide methylation data are based on conventional association analysis and earliest threshold-based gene set analysis that lacks sensitivity to be able to reveal all the relevant effects of smoking. The aim of the present study was to investigate the impact of active smoking on DNA methylation at three biological levels: 5′-C-phosphate-G-3′ (CpG) sites, genes and functionally related genes (gene sets). Gene set analysis was done with mGSZ, a modern threshold-free method previously developed by us that utilizes all the genes in the experiment and their differential methylation scores. Application of such method in DNA methylation study is novel. Epigenome-wide methylation levels were profiled from Young Finns Study (YFS) participants’ whole blood from 2011 follow-up using Illumina Infinium HumanMethylation450 BeadChips. We identified three novel smoking related CpG sites and replicated 57 of the previously identified ones. We found that smoking is associated with hypomethylation in shore (genomic regions 0–2 kilobases from CpG island). We identified smoking related methylation changes in 13 gene sets with false discovery rate (FDR) ≤ 0.05, among which is olfactory receptor activity, the flagship novel finding of the present study. Overall, we extended the current knowledge by identifying: (i) three novel smoking related CpG sites, (ii) similar effects as aging on average methylation in shore, and (iii) a novel finding that olfactory receptor activity pathway responds to tobacco smoke and toxin exposure through epigenetic mechanisms.