Defending champion Juli Inkster, Angela Stanford and Hilary Lunke are tied for second place at 2-under-par 140, followed by Donna Andrews, who posted a 1-over 72 to finish alone in fifth place at minus-1.
McKay held an eye-opening seven-stroke lead when she played her final hole, the par-4 ninth. Her drive plugged in the face of a fairway bunker and did all she could to muscle her second a few feet.
Her third shot at the hole was an 8-iron that missed the putting surface. McKay chipped her fourth but the ball never checked and rolled off the green. In what she described as the 'worst shot' of the hole, McKay hit a chip that left her in an impossible spot and she had 10 feet for triple-bogey. She canned the putt to fall back into her four-stroke lead.
'I didn't want to finish that way, but I didn't really play the hole that badly,' said McKay, who represented the European Solheim Cup team last year. 'It was just really nice to finish off with that 10-foot triple bogey putt. It happened and that's just one of those things.'
Michelle Wie, the 13-year-old amateur, posted her second consecutive round of 2-over 73 to finish 36 holes at 4-over-par 146. She is tied for 31st place but her golf game was secondary to an alleged incident with playing partner Danielle Ammaccapane after Thursday's round.
'She (Ammaccapane) kind of told me where to stand and not for etiquette stuff like that,' said the 13-year-old, whose father claimed Ammaccapane pushed Wie and berated the youngster in the scoring tent after the first round. 'But I think I'm learning and I hope I get past the learning experience and I start winning.'
Annika Sorenstam, the top player in the game and a two-time winner of this event, posted her second 72 in as many days and is tied for 19th place at 2-over-par 144.
McKay started the second round with a three-shot lead after a first-round 66 on Thursday. She opened on the second nine Friday and tallied three pars out of the gate but ran into trouble at the 13th. Her tee ball at the par-3 hole landed short in a greenside bunker, where she blasted out to eight feet and missed the putt.
At the par-4 17th, McKay knocked a 5-iron to six feet and holed the birdie putt. She made it two in a row at 18 when her chip shot from 50 yards rolled three feet from the hole.
McKay made the turn at 6-under par and quickly added to that with a 15- footer for birdie at the second. She drove into a fairway bunker at No. 4 but was able to get a sand-wedge on it and stick it 15 feet from the hole. McKay sank the putt then added another birdie at the fifth after she drained a 40-footer.
Now ahead by seven, McKay made pars at six, seven and eight before the fateful miscue at nine.
Still, McKay owns a four-shot lead after two rounds of a major championship. Only once in her LPGA Tour career has she held a lead after the halfway point, the 2001 LPGA Corning Classic, where she tied for second. She took sixth in last year's U.S. Women's Open and the 28-year-old is ready for a breakthrough and win for the first time on tour, even if it is the top tournament in the sport.
'I'm trying to play some smart golf and always give myself a par opportunity, and other than No. 9 I think I've done that,' said McKay. 'I've given myself good par opportunities, and fortunately have been able to roll a couple of putts in that led to the birdies, but I'm just trying to play smart golf and worry about the par first, and if a birdie happens, then that's great.
'It's still just Friday. There's 36 more holes out there and anything can happen. I'm just excited about the last couple of days and I'm just going to try and keep making good swings. I think that's really my key thought for the weekend.'
Inkster mixed four birdies, two bogeys and a double-bogey on Friday for a round of even-par 71.
'I shot even-par today, after playing late last night, coming out here in the morning playing, so I'm very happy where I'm at,' said Inkster, who also won this title in 1999. 'If you would have told me I would be 2-under after two I would have taken it.'
Stanford, who earned her first LPGA Tour victory last week at the ShopRite LPGA Classic, collected four birdies and three bogeys for a round of 1-under-par 70.
'When there's a player that's running away from you, it's hard to think about where you fall in the field because you're still chasing that one person,' said Stanford. 'I guess I'm just shocked that I'm where I am.'
It was five birdies and three bogeys on Friday for Lunke and the 24-year-old shared similar thoughts as Stanford.
'I looked up at the board a couple times out there and saw I was hovering around third or fourth place and that's where I kind of expected I would finish at the end of the day,' said Lunke. 'I guess I'm pleased to see that I ended up better than I thought.'
Natalie Gulbis (69), Beth Daniel (69), Dottie Pepper (70), Laura Diaz (71), Rosie Jones (72), Leta Lindley (69), Jeong Jang (69), Nabisco Championship winner Patricia Meunier-Lebouc (69) and Alison Nicholas (67), who won this title the last time the event was played at Pumpkin Ridge in 1997, share sixth place at even-par 142.
Aree Song, the amateur who was tied for fourth after the first round, shot a 2-over 73 Friday and is part of a group in 15th at plus-1.
The 36-hole cut fell at 7-over-par 149 and among the notable players who missed the mark were: two-time former champion Karrie Webb, 1991 winner Meg Mallon and 1987 titlist Laura Davies. That group finished at 8-over-par 150.