Allenby, who led by a stroke after the opening round, has a 36-hole total of 9-under 135.
Fellow Australian Aaron Baddeley had the low round of the day -- a 66 -- to move into second place at 8 under. Five golfers are four shots behind Allenby and tied for third, including 18-year-old Rory McIlroy of Northern Ireland, who shot a 69 Friday after an opening 70.
Australians Terri Pilkadaris (68), Rick Kulacz (69) and Scott Strange (69), plus Swede Daniel Chopra (70) were tied with McIlroy, the low amateur at this year's British Open who turned professional in September.
Allenby took a two-stroke lead with a birdie on the 17th, but gave the shot back on the 18th after an errant tee shot.
'It would have been nice to stay at 10-under because my goal is to shoot five-under each day,' Allenby said. 'To get to 20-under ... would win the tournament quite easily, unless Aaron goes out there and does something silly.'
Baddeley's round included eight birdies and two bogeys. He capped it with a near-perfect wedge on his final hole, the par-4 ninth, finishing inches from the hole and tapping it in for birdie.
'Overall I was very pleased ... I'm going to be right there for the weekend,' Baddeley said. 'I feel very comfortable and I feel like I can shape the ball the way I need to.'
McIlroy said he enjoyed playing his first two rounds with Baddeley, who also was subject to high expectation early in his career after winning the Australian Open as an amateur in 1999 and in 2000 after turning pro.
'We fed off one another today, we were hitting good shots, hitting fairways, hitting greens and holing a few putts, which helps,' McIlroy said.
Michael Campbell of New Zealand, the 2005 U.S. Open champion, failed to make the cut, shooting an 84 Friday after an opening 71 to finish tied for 147th in the 156-man field.
Starting his round on the 10th hole, Campbell had four pars, then went bogey, bogey, double bogey and bogey en route to an outward 41. He had two triple bogeys, two bogeys and a birdie on his last nine.
The 6,980-yard Huntingdale layout is one of Melbourne's 'sandbelt' courses that include 1998 and 2011 Presidents Cup venue Royal Melbourne and 2001 world matchplay course Metropolitan.
The Masters and next week's New Zealand Open are co-sanctioned with the European Tour. The Australian PGA from Dec. 6-9 and the Australian Open from Dec. 13-16 close out the four-week Australasian PGA season.