Hee-Won Han also posted a 67 Friday to move into second place at 7-under- par 135. She is followed by Se Ri Pak (67), Nicole Jeray (68), Kelli Kuehne (68) and Marisa Baena (68) at 6-under 136.
Diaz opened on the front nine at Highland Meadows Golf Club. She chipped in for birdie at the par-4 third after her second shot came up just short of the green.
'I had two really good opportunities on the first two holes, about a 12-footer and a nine-footer, that I didn't make, but I chipped in on the third hole,' Diaz said. 'It was one of those days where you wish you made a few more putts.'
She dropped a 9-iron within nine feet to set up birdie at the fifth.
'A funny thing happened there on No. 5,' Diaz said. 'My ball and Michelle McGann's ball had hit in the fairway so we had to have a rules official come back. We were lucky enough to have a volunteer down there, who saw it all happen, and was able to judge about how far back my ball was.'
Diaz's 9-iron stayed hot as she stuck one within six feet at the next for another birdie. Diaz lost her momentum at the par-5 seventh when she pulled her second shot left. She was unable to save par and fell back to minus-8.
Around the turn, Diaz rolled home a 50-footer for birdie at the 13th. She capped her round with an eight-foot birdie at the par-5 17th.
'I hit it a lot better today than I did yesterday, but I didn't make too many putts,' said Diaz. 'You hope one thing is working when something else isn't. Hopefully, the next two days I can get them both working together.'
Han got off to a nice start as she chipped in for birdie on the first. At the third, she dropped an 8-iron within eight feet for birdie. She later birdied the seventh from seven feet to move to minus-6.
Han had some problems on the back side. She lost her drive left off the 10th tee and that led to a bogey. The South Korean recovered with back-to-back birdies from the 13th.
However, another poor drive off the 15th tee led to her second bogey of the back nine. Han closed out in fine style though as she dropped a sand wedge within three feet at the 18th to set up her final birdie.
Chris Johnson made a huge move on Friday with an 8-under 63. That vaulted her from a tie for 100th to a share of seventh at 5-under-par 137. She is joined there by Miriam Nagl, Emilee Klein and Michelle Ellis.
Rachel Teske, the defending champion, struggled to a 1-over 72. She is joined in 11th place at 4-under-par 138 by Jamie Hullett, Jung Yeon Lee, Jennifer Rosales, Dottie Pepper and Heather Bowie.
The cut line fell at 2-over-par 144. Teen sensation Michelle Wie missed her first cut in five LPGA appearances this year. She came in at 3-over-par 145 after rounds or 73 and 72.