The group hired investment bank Goldman Sachs at the end of last year to screen potential interest in the brand.
Daimler will cease production of the Forfour model, but this is still subject to Mitsubishi and other partners agreeing in negotiations.
All focus will now be put on the Fortwo to ‘ensure the long-term sustainability of the Smart brand’.
The cut of the Forfour model will mean a loss of approximately 300 employees at the Smart plant in Boblingen, Germany.
However, all these plans must still be approved by the DaimlerChrysler board.
Daimler said it would cost approximately €1 billion (£690 million) if the plans do go through.
DaimlerChrysler is putting all of its efforts into the Smart Fortwo
The Forfour gets the axe