The 35-year-old former world number one was delighted with his round of 67 to reach the clubhouse at nine-under par, a shot clear of local veteran Peter O'Malley, whose six-under 66 was the lowest score of the day.
Australia's world number seven Jason Day, who played with his boyhood hero Woods in front of packed galleries at the Lakes course for the first two rounds, was a further shot back in third on seven-under after a 68.
Almost two years since his 95th and last title at the Australian Masters, though, most attention was focused on the fortunes of the greatest golfer of the last couple of decades, some say of all time.
Fourteen-times major winner Woods, who earlier this week expressed his belief that he could once again dominate golf, was in no doubt he is playing as well as he has since his return from injury and reconstructing his swing.
“It feels good that I am there playing properly, it's not like I am slashing it all over the place. I am hitting the ball well,” Woods said after a seven-birdie, two-bogey effort.
“I have hit so many lips these first two days,” he added, lamenting several shots he let slip away. “It could have been pretty low.”
Woods led the field during the final round of this year's US Masters but the last time he led at the end of a day's play was at his own Chevron World Challenge last December, when he blew a three-shot lead on the final day.
Day was just pleased not to have embarrassed himself as he fulfilled a childhood dream of playing with Woods after picking up five birdies with just a single blemish on his scorecard. The gusty afternoon wind hampered the efforts of the late starters to overhaul Woods. American Bubba Watson managed a two-under 70 despite dropping five shots to finish three strokes off the pace alone in fourth place.
Australian overnight leader Jarrod Lyle shot a 74 to drop to a tie for fifth on five-under with four others, including American Nick Watney (73), one of a string of players warming up for next week's Presidents Cup.
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