Jeff Quinney, who shared the first-round lead with Zoran Zorkic, managed a 1-under 70 in round two. Quinney is alone in second place at minus-6.
Zorkic is one stroke further back at 5-under-par 137 after an even-par round on Friday. He was joined in third place by Rick Price (65), Cameron Beckman (70) and Jim McGovern (66).
Hughes opened with a 6-foot birdie putt on the first and got to 3 under as he birdied the fourth. However, he gave a stroke back on the par-4 fifth with a three-putt bogey.
The Australian atoned for that error as he kicked in a 2-foot birdie putt on the eighth. Hughes made it two straight with a birdie on nine and poured in a third consecutive birdie putt on 10 from 10 feet away.
Hughes got to 6 under as he drained a 12-foot birdie effort at the 12th. After three straight pars, he caught fire down the stretch.
The 39-year-old birdie No. 16 at StoneWater Golf Club to move ahead of Quinney. Hughes birdied the par-3 17th from 18 feet out and closed with a 6-foot birdie putt on 18 to end three clear of Quinney.
'I didn't really do much wrong. I putted great,' admitted Hughes. 'I never really got in much trouble at all and I holed the putts today.'
Since missing the cut at the British Open, Hughes has played solid golf with four straight top-25 finishes.
'I've played great the last month or so. Even though I didn't make the cut at the British, I had fun and it is paying off now,' Hughes stated. 'I normally beat myself up when I hit a bad shot, but now I'm just going with the flow.'
Quinney, the 2000 U.S. Amateur Champion, birdied the second to move to minus- 6. He collected another birdie on No. 4 before playing the final 14 holes at plus-1 with a bogey on the par-5 13th.
Brenden Pappas, the winner at the Rex Hospital Open, posted an even-par 71. He was joined at 4-under-par 138 by Glen Day, Chris Anderson, Chris Baryla, Josh Broadaway, Craig Lile, Mario Tiziani, Craig Kanada, Gavin Coles, Akio Sadakata and Tom Scherrer.
The cut line fell at even-par 142 with 60 players making the cut. Among those missing the cut were Tripp Isenhour, who is No. 3 on the money list, and Jason Dufner, No. 5.