Information and communications technology (ICT) is increasingly used in bureaucratic and regulatory processes. With the development of the `Internet of Things', some researchers speak enthusiastically of the birth of the `Smart State'. However, there are few theoretical or critical perspectives on the role of ICT in these routine decision-making processes and the mundane work of government regulation of economic and social activity. This paper therefore makes an important contribution by putting forward a theoretical perspective on smartness in government and developing a values-based framework for the use of ICT as a tool in the internal machinery of government. It critically reviews the protection of the rule of law in digitized government. As an addition to work on e-government, a new field of study, `e-regulation' is proposed, defined, and critiqued, with particular attention to the difficulties raised by the use of models and simulation. The increasing development of e-regulation could compromise fundamental values by embedding biases, software errors, and mistaken assumptions deeply into government procedures. The paper therefore discusses the connections between the `Internet of Things', the development of `Ambient Law', and how the use of ICT in e-regulation can be a support for or an impediment to the operation of the rule of law. It concludes that e-government research should give more attention to the processes of regulation, and that law should be a more central discipline for those engaged in this activity.