This research proposes Smart Bus System (SBS) powered by bus-to-devices wireless communications technology including, but not limited to, 3G, 4G/LTE, Wi-Fi, Dedicated Short Range Communications (DSRC), and Bluetooth. SBS is an innovative urban bus operation system integrated with Information Technology (IT) to enhance the efficiency of bus operation, to encourage bus ridership, and to improve the mobility and sustainability of urban transportation. SBS enables 1) a bus to take a shorter path to catch up the schedule when it is behind the schedule and no passengers need to get off or get on and 2) passengers to send a hold request so that the next transfer bus, if at all possible, waits for the transfer passenger. The proposed project will be initially conducted within a simulation environment realizing actual hardware devices such as traffic signal controller, mobile devices (e.g., smartphone, tablet PC), and virtual transit management center. The goal of this project is to demonstrate that the proposed innovative Smart Bus System can improve transit system reliability and increases ridership. The increased bus ridership likely decreases the number of passenger cars on roadway, thereby resulting in the improvement on mobility and air quality and fuel consumption. Thus, the potential benefits of the smart bus system will be gained from the aspects of both mobility and environment.