Writer and director Daniels was one of the first to reach out to Smollett in January when he was reported to have been brutally beaten in a racist and homophobic assault in Chicago, Illinois, where the hip-hop musical drama series is filmed.
However, the actor was subsequently accused by police officials of staging the whole incident, and was charged with 16 felony counts for disorderly conduct.
He pleaded not guilty to the allegations, and the case was expected to go to trial before prosecutors announced they would no longer be pursuing the charges in late March.
Smollett has continued to maintain his innocence, but the scandal cost him his job on "Empire", as Daniels recently confirmed the 36-year-old's character, Jamal Lyon, will not be returning for the sixth and final season of the show.
Now Daniels is opening up about the real-life drama, admitting he struggled to deal with the odd turn of events as the alleged hate crime initially reminded him of his own tough past as a young, gay man.
"I'm beyond embarrassed," he tells New York Magazine.
"I think that when it happened, I had a flash of me running from bullies. I had a flash of my whole life, of my childhood, my youth, getting beaten."
Even though Smollett's charges were ultimately dropped, Daniels still isn't sure what to believe, and it pains him to cast doubt on the actor, whom he considered to be like family.
"Of course, there's some doubt," he says. "I'm telling you that because I love him so much. That's the torture that I'm in right now, because it's literally if it were to happen to your son and your child, how would you feel? You would feel, 'Please, God, please let there be that glimmer of hope that there is some truth in this story.' That's why it's been so painful. It was a flood of pain."
As a result, Daniels chose to avoid all news coverage of the scandal and distance himself from Smollett in a bid to maintain a sense of normalcy.
"I had to detach myself and stop calling him, because it was taking away the time I have for my kids, the time I have for my partner," he explains. "It was affecting my spirit and other shows, everything."