Montgomerie, who led after the first round as well, only managed a 1-under 69 on Saturday, but is one back at minus-8. He will be in search of his first official win in the United States.
Daly has more than Monty to worry about come Sunday.
Tiger Woods shot a 2-under 68 and is tied for third place with Sergio Garcia, who posted a 67 on Saturday. The pair is knotted at 7-under-par 203.
Woods, who shared the lead during the round until a bogey at 11, had some trouble with the driver in round three. At the 14th, his drive landed under the wheel of a van that is used to cart players back to the clubhouse in the event of a weather stoppage.
On Harding Park's closing hole, Woods lost his tee ball right and it bounced on the cart path and into a hospitality tent. It came to rest on a step, but after a drop, he nearly made birdie and is in the hunt for his fourth title at this tournament.
'It was an eventful day,' said Woods. 'A couple par-4s I drove it on, put the ball under a car and balls in trees and made some putts, hit a couple bunkers, so pretty much saw most of Harding Park.'
Garcia had a chance to join Montgomerie in second. All he had to do was become only the second player to birdie No. 18 on Saturday and the other by Fred Couples, was a chip-in.
His putt from 25 feet lipped out of the hole and now the Spaniard will have to overcome a two-shot deficit if he is to claim his first victory in a World Golf Championship event.
'I'm looking forward to tomorrow,' said Garcia. 'I think I've been playing very well all year. Finally I'm starting to play a little bit better, so I think it's going to be fun.'
Daly has the lead with a round to go, but it certainly did not look like his name would be atop the leaderboard with his start. He collected a bogey at one and a double bogey at three, but the two-time major winner rebounded.
He birdied four and seven and his length once again worked out for him at the par-5 10th. Daly, who has driven several par-4s all week, reached the 10th in two and rolled in the 25-footer for eagle to get within one of Montgomerie's lead.
Daly, who won the 1991 PGA Championship and the 1995 British Open, matched the Scotsman in first with a 15-footer for birdie at the 14th. He nearly drove the green at the par-4 16th, but came up just short. Daly pitched to a foot and tapped in the birdie putt to move one clear.
Daly made a pair of pars coming in and has a chance at his sixth PGA Tour victory. He won last year's Buick Invitational, but he conceded he will have some jitters.
'It would be a nice thing to be in this position a lot, and on a great golf course and at a great event,' admitted Daly. 'I am nervous, yeah, which is good. It's good to have the butterflies. If you don't, you shouldn't be out here.'
Montgomerie ran home a 25-footer for birdie at the eighth that gave him a one- shot lead at minus-8. He calmly made pars around Harding Park, but looked to be in trouble at the 15th. Montgomerie's drive landed in a bunker, then his approach went through the green. The Scotsman chipped to 15 feet and rolled in the par save.
Montgomerie, who won last week's dunhill links championship on the European Tour, is playing with confidence and is in position for an important victory in America.
'That's what one always does come Saturday night, is to give oneself an opportunity to win, and I've done that, and we'll see what happens tomorrow,' said Montgomerie. 'It's very noisy out there, very noisy, but it's all good fun and it's good to see their heroes. We'll see what happens.'
Henrik Stenson shot a 3-under 67 and is alone in fifth place at 6-under-par 204. Stuart Appleby carded a 1-under 69 and has sole possession of sixth at minus-5.
Vijay Singh (69), David Toms (70), Sean O'Hair (71) and Jim Furyk (71) are knotted in seventh place at 4-under-par 206.
Graeme McDowell reached 7-under par, but fell victim to the par-4 18th. McDowell left the hole with a quadruple-bogey eight, but still shot a 3-under 67. He is part of a group tied for 11th place at minus-3.