Thomas Bjorn moved into a share of second place with a 5-under 67. He was joined at 11-under-par 205 by defending champion Colin Montgomerie (69). Peter Hedblom (66) and Maarten Lafeber (67) were one stroke further back at minus-10.
Dougherty fell out of the lead during the middle part of the round, but a late rally gave him the third-round lead. He opened his third round with a birdie at the par-5 second on the Masters Course at Laguna National Golf & Country Club.
The Englishman stumbled to a bogey at the par-4 sixth. Dougherty erased that mistake with a birdie at the par-3 eighth. He moved to minus-11 with a birdie at the par-5 11th.
Dougherty faltered to a bogey at the next that dropped him out of the lead. He parred his next three holes before turning it on. The 22-year-old drained a 30-foot birdie putt at the par-4 16th to move back to 11 under.
Dougherty made it two straight as he birdied the par-3 17th from 6 feet out. The Liverpool native made it three in a row to close his round as he sank a 10-foot birdie putt the par-4 closing hole. He will go for his first European Tour title on Sunday.
'I was a bit shaky out there at the start, it is a lot of pressure because they are guys that I grew up watching on television and I admire both players tremendously,' Dougherty noted of his playing partners Bjorn and Montgomerie. 'But I am playing well at the moment and I felt like I held my own from tee to green and I was definitely as strong as them from tee to green.
'It was great fun and I cherish the fact that if I am going to win this I have to beat two of golf's great players. I would take a win however it comes, but to have a chance to win a golf tournament having those two guys on my tail is fantastic.'
Bjorn, who opened the event with an even-par 72, moved into contention with his third-round 67. He opened the third round with back-to-back birdies from the first.
Bjorn came back with a birdie at the eighth. He converted birdie opportunities at the 10th and 11th to climb to 10 under.
The seven-time winner on the European Tour jumped into a share lead with Montgomerie at 12-under when he eagled the par-5 15th. However, he bogeyed the 17th to drop out of the lead. He closed with a par at the last.
'My round had everything,' said Bjorn. 'There was a lot of good stuff in there, but there were a couple of mistakes as well. But it's always nice when you have seven birdies and an eagle because you know you are doing the right things.'
Montgomerie opened his round by birdieing the par-5 third for the third straight round. He stumbled to a bogey at the fifth, but came right back to birdie No. 6. Monty tripped to another bogey at seven.
The Scotsman turned it on around the turn. He picked up a birdie at the ninth and came right back to birdie No. 10. Montgomerie climbed into the lead at minus-11 with a birdie at the par-3 12th.
Montgomerie moved to 12 under with a birdie at the par-5 15th where he was joined atop the leaderboard by Bjorn. Montgomerie fell out of the lead when he bogeyed the 17th. He closed with a par on No. 18.
'I'm still very much in the tournament,' Montgomerie said. 'There is nothing wrong with my golf, it's just that I haven't holed enough birdies. But there is all to play for tomorrow and I am out again with Nick and Thomas and that is nice and they are good to play with.'
Soren Hansen posted a 3-under 69 to move into sixth place at 8-under-par 208. Gregory Havret and Wen-Chong Liang stand one stroke further back at minus-7.
Angelo Que and Jason Knutzon each posted rounds of 2-under 70. They were joined in a tie for ninth place at 6-under-par 210 by Jamie Donaldson (72).