The 38-year-old Scot fired a bogey-free 67 to climb to 6-under-par 138 for the event. He shares top honors with overnight leader Greg Owen, who shot an even-par 72, and Roger Wessels (69).
American John Daly, who won last years BMW International in Germany, is just one back after a 69. Hes tied with Ian Woosnam (72), Peter Baker (68), Anthony Wall (71) and Michael Campbell (69).
Montgomerie is searching for his 27th career European Tour title, and his first with new caddie Jason Henning. Montgomerie dismissed his caddie of 10 years, Alastair McLean, prior to the start of this event.
Montgomerie said he is in no hurry to hire a full-time bagman; Henning usually works for Robert Karlsson, who is not playing this week.
The two have teamed well through two rounds at The Belfry, which will host the Ryder Cup in September.
Following a chip-in on his final hole Thursday, the big Scot continued to increase his stride with five birdies and no bogeys Friday.
'My chip-in at the 18th last night gave me the momentum. It's amazing how it continues through dinner and this morning. I've got my distance control back and a 67 in the French Open last week proved something was on the way, Montgomerie said.
'I'd like to win because this is the Ryder Cup venue. I want to prove to myself and the team that I can compete and am not out to make up the numbers. My ambition is as great as it ever was and any member of the Ryder Cup team winning here would be a huge boost for him and his teammates.
Ten of the 12 European Ryder Cuppers are in attendance this week; five made the cut, as did Captain Sam Torrance. Padraig Harrington (70) is the closest team member to Montgomerie, tied for 13th at 3-under.
Full-field scores from the Benson & Hedges International