The topic was broached Tuesday during an interview with disc jockey A.Dot on BBC Radio 1Xtra, in which Smith was asked if he consciously allows his kids "a lot of freedom of expression."
"Yeah, I think it may have been a mistake," the Concussion star quipped with a hearty laugh. "I think we may have gone too far."
A.Dot followed up by asking Smith, "How do you respond then, for example, if you encourage them to have freedom of expression and then people will start making jokes about say Jaden modeling women's clothes. How do you – as a dad – handle that?"
"There's a really powerful internal quality as an artist that as parents we encourage," Smith responded. "You gotta get out on the edge, you have to try things, you have to be comfortable doing things that people don't agree with, and you have to be comfortable doing things that you could fail.
"And Jaden is 100% fearless, he will do anything," he added emphatically. "So as a parent it's scary, it's really terrifying – but he is completely willing to live and die by his own artistic decisions and he just doesn't concern himself with what people think."
VIDEO: Will Smith is pleased with how quickly Oscars have responded to its diversity issue
Jaden, who was recently named the new face of Louis Vuitton womenswear, has long been recognized for his daring, gender-bending fashion decisions. "I feel like it's an honor, actually, for people to think I'm crazy," the 17-year-old told GQ in October, explaining, "They thought Galileo was crazy, too, you know what I'm saying?"
While he admitted that he doesn't think he's quite "as revolutionary as Galileo," he added, "I don't think I'm not as revolutionary as Galileo."
Asked how he balances encouraging artistic expression with setting boundaries, Smith sighed and confessed, "You're hitting on a really difficult issue in our house."
Turns out there's some disagreement between Jaden and his 15-year-old sister Willow as to what makes an appropriate weekend curfew time.
Smith explained that when Jaden goes out, he's usually in a group of "6 or 7 dudes, so they have a small army when they go out, so their freedom is slightly different from Willow's. Willow's a 15-year-old girl. We try to have the same rules but it's a different world, so we've been struggling with that."
On Fridays and Saturdays, Smith says she can stay out until 11:00 or 11:30, but like most teenage girls, "She keeps calling and adding 15 minutes."