Since the cloud library integration from CC 2015, smart objects in photoshop are by default linked-via-cloud-account (pardon the terminology, I don't remember it specifically). Previously all smart objects were auto embedded, thus nested smart objects could be opened/edited from the parent file.

Sure, you can embed a link smart object by right clicking on the layer, but that is tedious and not scalable.

Are there any smart object settings in Photoshop that I'm missing?

  • Well Creative Cloud libraries panel didn't force every Smart object to be linked to the cloud. You can still File > Place embedded... and File > Place linked... just the same. It's an added functionality, it didn't replace anything. That said, you can right click something in the Libraries panel and Place copy. – Joonas Feb 25 '16 at 14:13
  • I don't think I clarified my scenario properly. In my case, whenever I paste an object from Illustrator CC, it gets pasted as cc-cloud-linked smart object by default. For the smart object to be edited from another machine, it requires to be manually embedded (by right clicking on the layer and so on...) It isn't the case when smart objects exchange within Photoshop documents. It only happens when I try to copy something from Illustrator then paste it in PS. – musavvir Mar 29 '16 at 12:17
  • When you paste from outside of Photoshop, it should give you this dialog. If you have Add to my current library checked, it will be linked to the cloud. These options by the way stick. So if you uncheck it, it won't turn on unless you decide to check it again. Simply unchecking that option will get rid of the problem you're having. Or it should. It sounds like you aren't seeing this dialog, in which case I'd suspect that you are doing something that circumvents it ( A script or Action maybe? ) or perhaps it's a bug. – Joonas Mar 29 '16 at 12:31
  • If it is a bug, it sounds like one that could be fixed by trashing the preferences. You can do that by holding the following shortcut keys immediately after launching PS. WIndows: Alt+Control+Shift Mac : Alt+Cmd+Shift. – Joonas Mar 29 '16 at 12:31

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