The Downton Abbey beauty was first linked to Smith last May (14), when they were spotted spending time together at the Cannes International Film Festival, and now they have made their first public appearance together in Milan.
Smith, 32, posed with his arm around 25-year-old James' waist as they stopped for the cameras.
The photo opportunity occurs four months after the actress dismissed rumours they were dating, insisting, "Me and Matt are not together. He's just my friend and we hang out a lot. We have the same circle of friends. We get on really well as we have a lot in common with acting."
The couple is set to appear as lovers on screen in the upcoming movie adaptation of Seth Grahame-Smith's novel Pride & Prejudice & Zombies.
Smith previously dated model Daisy Lowe until 2011, while James was once linked to actor Jack Fox.
Game of Thrones star Richard Madden plays leading actress James' Prince Charming in the new Cinderella film.