Raphael Jacquelin of France joined Australian's Nick O'Hern and Richard Green in a tie for second at 8-under-par 136. Germany's Alex Cejka was one shot further back at 7-under-par 137.
McDowell, who won this year's Italian Open, was hardly in contention for a spot in the Ryder Cup this year, but the 25-year-old finished within reach of one of the last entries on the European points list.
'I began to realize how realistic the Ryder Cup really is for me,' said McDowell. 'I obviously played great for the first six, seven months this year and put myself right in the position where Ryder Cup was obviously realistic and I missed out this time, but 2006, Ireland is certainly going to be right on my horizon.'
He birdied the first two holes at Gut Lrchenhof on Friday and knocked his third in a greenside bunker at the par-5 third. McDowell then hit his sand shot within a few inches of the hole and tapped in to make it three in a row.
McDowell added a birdie at the par-5 seventh and joined the leaders at 8 under par with a birdie at the par-3 11th. He fell one off the pace with a bogey at the par-5 13th, but recovered in style at the very next hole.
'Kind of had a bit of nightmare on 13,' said McDowell. 'Some times the golf course takes things away and gives them straight back.'
McDowell holed out from the fairway with a wedge for a birdie at the par-4 14th and followed that up with a birdie at the 15th. He added to his lead with a birdie at the par-4 17th to hold the top spot through 36 holes for the first time in his European Tour career.
'The course is yielding a lot of birdies,' said McDowell. 'The front nine was playing difficult and right about our 10th or 11th hole today the wind actually started to subside a little bit and I guess we had it a little easier coming in.'
Jacquelin played the back side first and collected three bogeys and two birdies over his first nine holes. He began to turn things around with a birdie at the second and hit his third shot within a foot of the hole for a birdie at the par-5 third.
The 30-year-old drained a 14-foot putt for a birdie at the fourth and played his second shot to 8 feet for a birdie at the fifth. Jacquelin then birdied the seventh for his second straight round of 68.
O'Hern tallied five birdies and a bogey for a 68 of his own, while Green did the same for his 68.
Thomas Levet carded a 68 to take sixth place alone at 6-under-par 138 as the top-ranked European Ryder Cup member through the second round. Greg Owen and Robert-Jan Derksen tied for seventh place at 5-under-par 139.
Ryder Cup member Paul Casey shared ninth place with Peter O'Malley at 4-under-par 140.
Another pair of Ryder Cuppers were one shot further back at 3-under-par 141, including first-round leader Padraig Harrington. Harrington struggled to a 75 on Friday to join teammate Darren Clarke, Alastair Forsyth and Raymond Russell in a tie for 11th.
Defending champion K.J. Choi finished at 2-over-par 146, one shot off the cut line, which fell at 3-over-par 147.
A total of 72 players survived to play the weekend. Among those who won't be around are Ryder Cup captain Bernhard Langer and team members Colin Montgomerie and Ian Poulter. Open champion Todd Hamilton also missed the cut.