R.W. Eaks, who held a share of the opening-round lead with McCullough, managed an even-par 72 to finish three shots back at 6-under-par 138 along with Jerry Pate and Mike Reid.
Curtis Strange, who is making his Champions Tour debut, followed his opening 2-over 74 with a 1-under 71. The two-time U.S. Open champion is 10 back at 1 over.
McCullough struggled early at The Club at TwinEagles with a bogey at the par-4 first. He was able to recover momentarily with a birdie at the par-5 third but found trouble again with a bogey at the par-3 fifth.
Things got better for McCullough on the back nine and he birdied the par-4 10th to get back to 6 under. He faltered with a bogey at the 11th but responded with a birdie at the par-3 12th after his tee shot stopped within 11 feet of the hole.
McCullough then rolled in a 7-foot birdie putt at the par-5 13th to grab a share of the lead at minus-7. He kept on rolling with a birdie at the 15th and a birdie at the par-4 18th to extend his lead.
'I'm just hoping to play as good as I can play,' said McCullough, who is seeking his third career victory on the Champions Tour and first since the 2001 Emerald Coast Classic. 'I'm starting to putt pretty well.'
Irwin also bogeyed the first and birdied the third. He stumbled again with a bogey at the fourth but played his third shot within 5 feet for a birdie at the par-5 sixth.
The 59-year-old, who has won this tournament twice in his career, added a birdie at the par-4 eighth but gave that shot back with a bogey at the 11th. Irwin then sank a 6-foot putt for a birdie at the 13th and tallied a birdie at the 17th for a round of 70.
James mixed three birdies with a bogey on the front nine to make the turn at 5 under. He struggled to a bogey at the eighth but countered with a birdie at the 13th.
The Englishman bogeyed the very next hole but collected back-to-back birdies from the 17th to complete a round of 68.
Gil Morgan, a two-time winner of this event, posted a 69 to join Don Pooley, Bruce Lietzke, D.A. Weibring, Ron Streck, Jim Albus and Tom Wargo at 5-under-par 139.