Williams' 63 on Friday broke Becky Morgan's course record from last year by two shots. Cristie Kerr also shot a 65 on Friday and briefly shared the record, but Williams smashed another record for this event, only in its second year. Her two-day total of 131 bettered the 135 Grace Park and Lorena Ochoa posted in 2003.
'I didn't even know what I shot,' said Williams. 'I am glad I played well. I have been struggling this year. I am hitting it a lot better, but you can't get ahead of yourself.'
Soo-Yun Kang, the first-round leader, shot a 1-under 70 and is tied for second place with Christina Kim. Kim carded a 4-under 67 and the two are knotted at 7-under-par 135.
Michelle Wie, the 14-year-old amateur phenom who finished fourth at this year's first major, the Nabisco Championship, shot a 4-under 67 and is tied for 16th place at minus-3.
'I was really happy about how I played today,' said Wie. 'But I think I could have been a lot better because I missed like a 4-footer for birdie and I missed a lot of putts.'
Williams started her scoring right away at the first with a 6-footer for birdie. She landed in a greenside bunker at the par-5 third but holed a 15-foot birdie putt after the tough shot from the trap.
She collected two additional birdies on the front side to make the turn at 4 under par.
Williams parred her first five holes on the back nine but broke into the red figures in impressive fashion at the par-5 15th. She hit a 5-wood to 2 feet and tapped in the eagle putt to take the top spot on the leaderboard.
Williams hit a 9-iron to 10 feet and converted the birdie putt at No. 16. She sank a 20-footer to save par at the 17th then rolled home a 3-foot birdie putt at the last to pad her lead.
'It's not that big a deal,' said Williams, who missed significant time in the 2001 season after a serious car accident. 'I mean, yeah, it's great. I am excited I played well, but like I said, doesn't matter we're only halfway there.'
Kang only tallied three birdies and two bogeys but is still within striking distance for win No. 1 on the LPGA Tour.
'It's a little different from yesterday and today,' said Kang. 'Yesterday, I shot everything great, but today I had a bit of a feeling like a little bit tired, swing weak and sometimes a little bit thin.'
Kim was even on her front nine but caught fire on the back. She recorded four birdies, then holed a 35-foot eagle putt from off the green at the par-5 15th.
At the last, Kim missed the green but hit a great chip to 2 feet. She missed the putt and lost a chance at sole possession of second place.
'It's kind of funny today was not quite as solid day as yesterday seemed to me,' said Kim. 'I started on the front side for some reason I tend to have a little more trouble on the front side than the back, but I just played my heart out and just stayed patient.'
Kerr's 65 took her into a share of fourth place with Jennifer Rosales and Suzann Pettersen, who both shot rounds of 4-under 67. The trio is tied at 6-under-par 136.
Jung-Yeon Lee (66), Hee-Won Han (68) and Carin Koch (69) share seventh place at minus-5.
Annika Sorenstam, the No. 1 player in the world, posted an even-par 71 and is part of a group tied for 24th place at minus-2.
Defending champion and Nabisco Championship winner Grace Park carded a 2-under 69 and is tied for 29th at 1-under-par 141.
The 36-hole cut fell at 3-over-par 145 and among the notable players who will miss the weekend are: Laura Diaz (146), Janice Moodie (148) and Sophie Gustafson (151).