The 45-year-old Hall of Famer leads Se Ri Pak (68) by four shots, at 8-under-par 205. Karrie Webb is six back after a disappointing 1-over 72. She is tied with Kim Saiki (69) at 2-under.
Daniel, winless on tour since 1995, claimed her only major victory at this event 12 years ago. Pak made this tournament her first title in 1998, while Webb won it last year.
Should Daniel once again find the winners circle Sunday, she would surpass Babe Zaharias (42 years, 11 months and 14 days) as the oldest player to win a womens major.
'I think it would be a great story,' said Daniel.
Daniel started the day with a two-shot lead over Webb, and stretched her advantage over the final three holes on the front nine.
The 32-time tour winner stuffed her approach shot on the par-4 seventh to six inches to go to 6-under-par. She then rolled in a 50-footer for birdie at the eighth, and nearly chipped in for eagle on the par-5 ninth.
By the turn, Daniel led Pak by four shots, at 8-under. The South Korean also played the front nine in 3-under 32 to leapfrog Webb, who offset a bogey at the fourth with a birdie at the ninth to remain at minus 3.
Daniel dropped a shot at the par-4 10th, but was happy to do so. She missed the green left on her approach, leaving her ball buried in the penal rough. She was unable to advance her third shot to the green, and then had to pitch delicately to 10 feet. Using a long-putter, she converted the bogey effort.
'The best bogey I've ever made,' Daniel quipped.
Daniel regained that stroke with a 12-foot birdie at 11, but once again gave it away with a poor chip shot and a bogey at the 12th. After going seven straight holes without a par, she parred five-in-a-row starting at 13.
That streak was snapped when she rolled home a 15-footer for birdie at the last to increase her cushion heading to Sunday.
'If I win, it's not going to make my career. If I don't win,
it's not going to break my career,' Daniel said. 'My motivation
is always to win.'
Only four players are under par through three rounds at the DuPont Country Club. Annika Sorenstam, who won the seasons first major at the Kraft Nabisco Championship, shot 73 Saturday to finish at 6-over.
Full-field scores from the McDonald's LPGA Championship