Jose Maria Canizares and Gary McCord, the overnight co-leaders, managed rounds of 1-under 71 to take second place at 11-under-par 205. Jim Ahern and Bruce Fleisher each carded 3-under 69s and are one stroke further back at minus-10.
James, a tour rookie who turned 50 last October, opened with three straight pars. At the fourth, James dropped in a birdie try and came right back at the fifth to make it two in a row.
The Englishman parred the final four holes of his opening nine at TPC of Michigan. Around the turn, James birdied the par-4 10th for the second straight day to get to 12 under.
James collected his fourth birdie at the par-3 12th. He came back with a birdie on the 14th to move to 14 under. He parred his final four holes to remain at minus-14 and close out a bogey-free round.
'The greens are too hard to be too aggressive,' said James. 'You have to balance getting it near the pin with not adding a long putt, which is very difficult on this course, the long putts are fiendish. The fact that I'm leading doesn't make any difference. I know I'm going to have to get to minus-17 to win.'
James, who owns 22 worldwide wins, has never won a major championship title despite plenty of Ryder Cup success.
'It would be fantastic. It would be brilliant. I would be over the moon,' said James of his potential win. 'Just to come over and keep my card would be great, finish top-30, that would be a bonus. So to do really well and keep my card and win majors, that would be even better. Whatever comes along, I'll take it. I'm glad to be here, really.'
McCord, who is taking a week off from his CBS broadcasting duties, was steady out of the gate. He ran off eight consecutive pars to open his round.
The 56-year-old birdied the par-4 ninth to get to 11 under. After a pair of pars around the turn. McCord dropped a stroke at the 12th. He came right back to birdie the following hole.
McCord faltered to another bogey on No. 14. The two-time winner on the Champions Tour picked up his final birdie at the 17th to secure his share of second place.
'The day was interesting,' McCord said. 'I had not been there in a while, in the last group and I had never been there when CBS was doing it, so you can understand there's a little bit of trepidation. Today was a day of wandering aimlessly, walking on marbles trying to figure out if my golf swing can hold up under the gun, if I can manage myself, if I can get the putter straight and if I can get the ball in the right positions and everything else.
'So it was a day of a bunch of conundrums, and I got through it okay. I didn't want to lose any ground. I wanted to see if I can handle where I was and still stay patient and do all of the things I was trying to do. So there was a lot of stuff going on there for me today.'
Canizares birdied three of his first six holes to get to 13 under. He tripped to a bogey at No. 7, but atoned for that error with a birdie at the 12th.
The Spaniard really struggled down the stretch. He stumbled to a double-bogey at the par-3 15th. He tried to fight back with a birdie at the 17th, but closed with a bogey at the last to join McCord at minus-11.
Quigley birdied each of his first two holes, and moved to 12 under with a birdie at the fifth. Around the turn, Quigley moved into a share of the lead with birdies at the 10th and 11th.
Things went downhill for the ironman though. Quigley, playing his 250th consecutive event for which he was eligible, knocked two balls into the water at the par-5 17th en route to a quadruple-bogey. He also bogeyed the closing hole to close a round of even-par 72.
With his late struggles, Quigley fell into a share of sixth place at 9-under-par 207. He is joined there by Ed Fiori, Bruce Lietzke, Dana Quigley and Jim Thorpe. Allen Doyle is one shot behind that group at minus-8.
Craig Stadler, the defending champion, struggled to a 1-over 73. He stands at 6-under-par 210 in a tie for 14th place.