Method and apparatus for producing ultra-smooth knitted fabric using hairy yarn belong to a technical field of textile. Yarn is false-twisted in a rotary holding form, for rotating the yarn stem on an ironing face. Meanwhile, a directional hairiness stretching device directionally ejects a steam flow towards the yarn, for reversely and orderly pre-wrapping hairiness on the rotating stem of the yarn, which avoids the yarn imperfection occurrence as the hairiness randomly or vertically wrapping onto the yarn stem. A vortex hair-wrapping device is used, so as to reversely wrap all the rest hairiness on the stem of the yarn, wherein a wrapping direction is opposite to a yarn moving direction for increasing difficulty of pulling out the wrapped hairiness during weft knitting, and increasing hair-wrapping tightness and fastness. The ultra-smooth yarn treatment apparatus is reasonably constructed and easily operated, which facilitates wide application.