Wayne Levi posted a 3-under 68 and was joined in second place by John Harris, who shot a 67 and jumped up from 12th place. That pair stands at 5-under-par 137.
Gil Morgan and Jay Haas, who shared the lead after round one with Irwin and Tom Watson, each posted rounds of even-par 71. They are at minus-4, with Watson (72) and Dave Barr (70) one stroke behind them at 3-under-par 139.
The second round of the Champions Tour's first major was completed Saturday due to lengthy delays due to heavy rain throughout the week. Since Monday, over 4.4 inches of rain has soaked the course and at times flooded it.
Irwin, who won this event three straight years from 1996 to 1998, began his second round Saturday morning on the back nine. He struggled to three bogeys over his first seven holes to tumble to minus-1. The all-time leader in Champions Tour wins clawed back with a birdie at the par-5 18th at Valhalla Golf Club.
The 58-year-old made it two straight as he birdied the first. After a par at the second, Irwin reeled off four straight birdies to scream up the leaderboard and take the lead at minus-7. However, he bogeyed the par-4 ninth to lead by one entering the third round.
Walter Hall tallied a 2-under 69 to move to 2-under-par 140. He shares eighth place with Mark James (71), Tom Jenkins (70) and Craig Stadler (71).
Bobby Walzel, Mark McCumber, Mark McNulty and Dave Eichelberger are one stroke further back at minus-1.
John Jacobs, the defending champion, stands at 5-over-par 147 after a 2-over 73 in the second round.
The cut line fell at 7-over-par 149 with 75 players advancing to the final two rounds. Among those missing the cut were eight-time Champions Tour winner Dana Quigley (150), reigning U.S. Senior Open champion Bruce Lietzke (152) and former major league pitcher Rick Rhoden (153).