Steinhauer, a four-time U.S. Solheim Cup team member, shot a season-best, 6-under 66 on Friday to finish at 11-under 133 at the halfway point of the four-day tournament at Panther Creek Country Club.
But the 44-year-old Steinhauer lost a stroke to Sorenstam, the defending champion who birdied her first four holes on the way to a 65.
'When you have Annika behind you, it's not always easy. She's a great player and obviously had a real hot one today,' said Steinhauer, bidding for her first win since the 2006 Women's British Open.
Sorenstam, defending the last of her 69 career LPGA Tour titles, said her game is rounding into shape in her seventh tournament since returning from a ruptured disk in her neck.
'I thought I played flawless today. I really did,' Sorenstam said. 'I had a lot of chances out there. I was never really in trouble and I'm very, very pleased. I drove it well, putted well. Sounds funny when you shoot 7 under to say you left a bunch there, but I really feel I did that. But making some great progress.'
Christina Kim, who has three top-ten finishes in her last five tournaments, was second at 9 under after a 66.
Kim says the leaders will have to keep posting low scores for a shot at the winner's $195,000 share of the $1.3 million purse.
'It's a birdie-fest. You have to go low to even have a chance at getting that title,' Kim said.
Mi Hyun Kim, the SemGroup Championship winner in May, was four strokes back at 7 under along with tour veteran Marcy Hart, whose best career finish is a tie for third in the 2006 Wegmans LPGA. Mi Hyun Kim shot a 67, and Hart had a 69.
Rachel Hetherington (69), Janice Moodie (69), Becky Morgan (67), Ai Miyazato (70) and Jin Young Pak (67) were five shots back at 6 under.
Steinhauer, whose seven career title include two majors, had seven birdies and just one bogey, sinking three putts of 20 feet or more.
'I'll tell you the difference is I made a lot of putts again today ... That's been the difference and it sure is fun to watch them go in,' Steinhauer said.
Sorenstam, who missed just four greens in regulation during the first two rounds, eagled the par-5 16th and had seven birdies to offset two bogeys.
'I felt really I was on fire for a long time today,' the 36-year-old Swede said.
Sorenstam came from behind to win last year's tournament, the last in a 31-year run at The Rail Golf Club in nearby Sherman. Sorenstam closed with a 10-under 62 to match the lowest final-round score by a tournament winner in tour history.
Hetherington, an Australian who has eight career wins but none since 2003, said Sorenstam's return to form is good for the tour.
'It helps us all and it makes us all play better,' Hetherington said.
Steinhauer and Sorenstam will meet again Sept. 14-16 in Sweden when the Solheim Cup matches pit the United States against Sorenstam's European team.
Kraft Nabisco champion Morgan Pressel shot a 1-over 73, dropping the 19-year-old star to 2-under 142 for the tournament.
Brooke Tull had her first hole-in-one on the tour, acing the 139-yard, second hole during an even-par 72. Tull missed the cut with a two-day total of 3-over 147.
Two-time tournament winner Nancy Lopez also missed the cut, but nearly logged her fourth career hole-in-one, hitting the pin on the 185-yard 17th hole. The 50-year-old Hall of Famer shot a 7-over 79 to finish at 16 over.
Top-ranked Lorena Ochoa is skipping the tournament after winning three straight events to push her tour-leading total to six.