Omar Uresti, Tyler Williamson and Todd Fanning were three shots off the pace after turning in four-under 67s.
Gregory had eight birdies to go along with one bogey and needed only 24 putts in his first trip around Peek 'n Peak Resort's par-71 Upper Course.
'It's the best round I've played this year and the best round I've played in a long time,' said Gregory. 'It was fun. I drove it well, hit the irons good and the putting's been coming around.'
The 29-year-old played the back side first and picked up his first birdie of the day at the par-four 11th. Gregory then birdied the 14th and added back-to- back birdies at 16 and 17 to make the turn at minus-four.
Gregory climbed to five-under with a birdie at the par-five second but gave the shot back with a bogey at the following hole. He recovered with three birdies over the last five holes to hold the lead for the first time in his career on the Buy.com Tour.
'It's just been getting better,' said Gregory, who has finished in the top-25 in his last two starts, including a tie for ninth two weeks ago at the Canadian PGA Championship. 'I had the feeling a day like this was coming.'
Friend opened his round with a pair of birdies and added three more on the inward nine, including one at the 18th, to finish alone in second.
'There's an awful lot of ferocious rough out there and fortunately I didn't visit it today,' said Friend. 'Overall, the key is driving the ball in play.'
Arron Oberholser, the winner of the Canadian PGA Championship, posted a round of three-under 68 to finish in a tie for seventh. Oberholser was joined by Ben Bates, Emlyn Aubrey, Billy Judah, Trevor Dodds, Vance Veazey, Chad Wright and Brian Wilson.
Cliff Kresge, who captured the Virginia Beach Open in May, was part of a large group at two-under 69.