Argentine Angel Cabrera and Englishman Paul Casey share third place as they each shot 6-under-par 66. Nicolas Colsaerts, Stephen Dodd and Peter O'Malley are one stroke further back at minus-5.
The K Club's Smurfit Course is the host venue this week. The K Club will host the Ryder Cup come September, but the Ryder Cup will be played on the Palmer Course. The 65s posted by Fasth and Dredge matched the Smurfit Course record that Justin Rose set in 2004.
Both Ryder Cup captains -- Europe's Ian Woosnam (3-over-par 75) and the United States' Tom Lehman (1-under-par 71) -- are in the field this week.
Fasth started on the back nine and carded his first birdie on the 11th. He came back with consecutive birdies from the 14th.
The Swede collected another birdie on the 18th to turn in 4 under. Fasth parred the first three holes of his second nine, then dropped his approach shot 3 feet from the hole at the fourth.
Fasth, who earned his fourth tour title earlier this year at the Open de Espana, tapped that birdie in, but faltered to a bogey at the next.
The 34-year-old recovered that stroke, and more, as he chipped in for eagle on the par-5 seventh to climb to 6 under. Fasth ran home a 22-foot birdie putt on the ninth, his last, to gain a share of the lead.
'I feel disappointed with how I've been playing in general because the game is there, the swing is there and the putting is there,' said Fasth, who played in the 2002 Ryder Cup. 'I've struggled to play as well as I should. I am trying to get back into my rhythm and doing things my way and hopefully the results will follow.'
Dredge, who was celebrating his 33rd birthday Thursday, didn't look like he would be among the leaders as he carded just two birdies over his opening nine holes. However, things were different on the back nine.
The Welshman caught fire from the 12th. Dredge birdied that par-3, then birdied each of the next three holes to jump to 6 under and within one of the lead.
Dredge, whose lone win came at the 2003 Madeira Island Open, parred 16 and 17, before a birdie at the par-5 closing hole gave him a piece of the first-round lead.
'There are big, big prizes at stake at the moment,' admitted said Dredge. 'I am a bit behind at the moment, but if I can play well from now on, then I've got a chance at The Ryder Cup. You just have to get your head down and try to win a tournament and do as well as you can.'
Peter Hanson, Simon Khan, Jyoti Randhawa and Jamie Spence share eighth place at 4-under-par 68.
World No. 4 and 2004 champion Retief Goosen was joined in 12th place at minus-3 by 2001 winner Darren Clarke, eight-time Order of Merit winner Colin Montgomerie and seven others.