In this paper, a smoothing algorithm for compensating inertial sensor saturation is proposed. The sensor saturation happens when a sensor measures a value that is larger than its dynamic range. This can lead to a considerable accumulated error. To compensate the lost information in saturated sensor data, we propose a smoothing algorithm in which the saturation compensation is formulated as an optimization problem. Based on a standard smoothing algorithm with zero velocity intervals, two saturation estimation methods were proposed. Simulation and experiments prove that the proposed methods are effective in compensating the sensor saturation.