Smart grids have developed as a potentially game-changing strategy for controlling the demand and supply of energy. Unfortunately, peak demand is a significant source of grid instability and rising energy prices, making it one of the most critical difficulties in smart grids. During times of high energy demand on the grid, demand response (DR) strategies incentivize consumers to change how they use energy. This study’s overarching goal is to learn how DR methods may be used to help smart grids make better use of their energy resources. The primary research is to develop a smart DR system that can predict times of high energy demand and proactively alter usage to reduce such periods. Machine learning strategies are utilized in the proposed system to estimate peak demand via past data, weather predictions, and other variables. The system will then alter energy use based on real-time data from smart meters along with other sensing devices to meet the projected demand. The simulation model will include several scenarios for testing the DR system’s flexibility, including a range of weather conditions, load profiles, and grid topologies. Several indicators, including peak demand reduction (80.04%), energy savings (38.09%), environmental consequences, and reaction time (<0.4 seconds), are used to evaluate the model’s performance. The output of the method excelled all of the other current methods that were taken into account. The system’s rapid response time and its positive environmental impact further highlight its potential in managing smart grid resources effectively.