Grace, winner of his first European Tour event in last weeks Joburg Open, signed for a 66 and a 12-under-par 134 total at The Links at Fancourt.
South Africas Thomas Aiken (70) and Englands Lee Slattery (65) are his nearest challengers at 8 under.
On another benign day of weather conditions, Grace birdied four of his first six holes and made his only bogey of the round at the 7th. After a birdie at the 10th, he made three consecutive birdies from the 14th.
Its been an amazing start for me. Ive been really calm the past couple of days, which is a big relief, he said. Its kept the nerves down, and that has allowed me to just play golf and enjoy it like last week.
Graces ball striking was once again the highlight of his game.
Ive been hitting the ball unbelievably well. Ive been putting myself in the right spots on the golf course and taking what has come my way.
At four shots off the lead, Aiken is not concerning himself too much with Graces intimate knowledge of the course. Grace grew up in the nearby town of George and declares The Links his favorite course.
I know Branden has a good knowledge of the golf course and is playing some fantastic golf, but there are still 36 holes left, Aiken said.
Slattery is equally content with his position at the halfway mark of this tournament following a round he described as the best of his career.
I think its probably the best, with it being such a big event and so many great players as well, Slattery said. It was just one of those rounds Im going to remember for the rest of my life, and hopefully it can kickstart something for me.
Olazabal heads into the weekend only five shots behind the leader and enjoying his best start to a season in recent years.
The last couple of years Ive played pretty poorly, so improving that, it was not all that difficult, he said.