Lane fired a course record at The Belfry to put himself in position to claim his first European Tour title in eight years. The 41-year-old shot 7-under-par 65 to take a two-shot advantage over fellow Englishman Greg Owen (70).
Lane stands at 10-under-par 206. Argentine Angel Cabrera and former Ryder Cupper Peter Baker, who hasnt won since 1993, are tied for third place at 7-under. Cabrera shot 68 Saturday, Baker shot 70.
Meanwhile, overnight co-leader Montgomerie fell into a tie for sixth place following a 1-over 73. The 38-year-old Scot, who is trying to extend a nine-year winning streak on tour, is five strokes back of Lane. He shares his position with Ryder Cup teammates Padraig Harrington (70) and Phillip Price (70).
Daly started the day one off the lead, but now must make up seven shots come Sunday. The American stumbled to a 2-over 74 to drop to 3-under-par for the tournament.
Lane is trying to erase some bitter memories at this venue. A member of the 1993 European Ryder Cup team, Lane lost his singles match against Chip Beck at The Belfry when he blew a 3-up lead down the stretch.
The Belfry will again play host to this years postponed Matches, and though Lane will not be competing, he can certainly extract a bit of revenge this week.
Saturday, he made the turn in 6-under 30, holing an 8-iron from 164 yards for an eagle-2 at the par-4 ninth.
I was aiming for it, I suppose,' he said. 'But if it had hit the flagstick an inch higher it might have gone either in the bunker or the water. That's the luck of the draw and I'm really looking forward to tomorrow. It would mean an awful lot to me to win again.'
Lane is seeking his first official victory since the 94 Turespana Open de Baleares. He also won the $1 million prize at that years Accenture World Match Play Championship.
Full-field scores from the Benson & Hedges International