Daly and Holmes, who opened with a 63 on Friday in the modified alternate shot round, had a 19-under 125 total on the Tiburon Golf Club course. The $2.75 million event will conclude Sunday with a scramble round.
Jerry Kelly and Rod Pampling matched Daly and Holmes with a 62 to join Justin Leonard and Scott Verplank (63) at 18 under.
'You don't want to get it too far behind those boys,' Pampling said. 'We're far enough behind them off the tee. You don't want to get far behind them on the score, too.'
Daly and Holmes birdied Nos. 8, 9, 10, 11, 13, 14 and 15, then broke a tie with Kelly and Pampling when Holmes made a 25-foot birdie putt on No. 18.
'I think we brother-in-lawed it pretty good,' Daly said. 'The front nine, I couldn't hit a fairway on the first six holes, and J.B. kind of took care of that.
'But he played exceptionally well on the back nine. If I hit it there 7 or 8 feet, he'd hit it in there 2 or 3.'
Leonard and Verplank, who shared the first-round lead with Daly and Holmes, birdied five of their last six holes to tie Kelly and Pampling.
Defending champions Kenny Perry and John Huston had the lowest score of the day, an 11-under 61 that moved them into a three-way tie for fourth with Trevor Immelman and Rory Sabbatini (63) and Mark O'Meara and Jeff Sluman (63).
The teams of Annika Sorenstam and Fred Couples, and Greg Norman and Nick Faldo struggled again.
'It's been great. I'm loving it,' said Sorenstam, the first female player in the Shootout. 'I just wish I could help my partner a little bit more. He's such a good sport and I'm having a good time. For me to get a chance to play with Nick Faldo and Greg Norman, it doesn't get any better than that.'
The winners Sunday will split $675,000.