Defending champion Des Smyth of Ireland joined France's Ilya Goroneskoul, Santiago Luna of Spain and Germany's Wolfgang Huget at 3-under 69.
David, who made the cut in the only European event he played last year, the Strophe Income in his native France, played the back nine at Santo da Serra Golf Club first and got off to a quick start with back-to-back birdies from the 11th.
He coasted at even par to make the turn at minus-two before picking up his third birdie of the day at the first. David added another at the third and closed out his bogey-free round with a 40-foot putt for eagle at the par-5 seventh.
'Today everything came together,' said David. 'This is my best round on the European Tour.'
The 24-year-old finished 55th in last year's Qualifying School.
Smyth, who became the oldest player to win on the European Tour with his title at this event last year, had six birdies and three bogeys to stand three shots off the lead.
'I played very well today, said Smyth. 'I had a couple of three-putts on the front nine and missed a very short putt on the 10th. But when you add those three shots together I am happy with the 69.'
Seve Ballesteros is part of a large group of players at two-under 70. The all-time winner on the European circuit was alone atop the leaderboard on the front nine at minus-three until he dropped a shot with a bogey at the 10th.
Also at 2-under par were 2001 Volvo PGA Championship winner Andrew Oldcorn and 1993 BMW International Open champion Peter Fowler.
Full-field scores from the Madeira Island Open