Jay Haas, another former winner of this event, finished in second place at 19-under-par 197 along with Ben Crane. Paul Azinger and Todd Fischer were one shot further back at 18-under-par 198.
Mickelson, who is coming off a year in which he went without a win on the PGA Tour, put together a pair of solid rounds on two of the courses in rotation at this five-round event before taking on the Arnold Palmer Private Course at PGA West on Friday.
'I don't know if I'd say it's a dream start but it's a nice start to the year,' said Mickelson. 'I think the nicest thing about it is the work that I've put in the off-season, I can see it paying off.'
The left-hander played the back side first and knocked at 8-iron to 15 feet for a birdie at the 10th. He added a birdie at the 11th and played his tee shot to 10 feet at the par-3 12th. Mickelson calmly drained the putt for his third consecutive birdie to start the day.
Mickelson landed a sand-wedge inside 12 feet for a birdie at par-4 16th but sent his second shot in the drink at the par-4 18th en route to a bogey.
He recovered on the front side with another remarkable stretch that saw him run home an eight-foot putt for a birdie at the first. Mickelson then two-putted for a birdie at the par-5 second and made it three in a row with a birdie at the third to pull two clear of the field at 19 under.
While Haas looked to keep things close, Mickelson kept on rolling and dropped a 5-iron inside 10 feet for a birdie at the par-4 seventh.
At the par-4 eighth, Mickelson played a sand-wedge to 18 feet and rolled in the birdie putt to secure a two-shot edge heading into the weekend.
'I've been very excited about 2004,' said Mickelson. 'I just could not wait for the year to get started. I couldn't wait to get 2003 behind me. I'm very encouraged by the way the first three rounds have gone.'
Haas played Indian Wells on Friday, a course Mickelson had his way with the day before, and fell hard out of the gate with a double bogey at the opening hole.
He countered with back-to-back birdies starting at the par-4 second but found trouble again with a bogey at the par-3 fourth.
At the par-5 fifth, Haas knocked a 5-wood inside 12 feet and converted the eagle putt to turn things around.
The eagle was all the 50-year-old needed as he drained a 15-foot putt at the par-4 seventh for his first of five consecutive birdies.
'I didn't get too panicky after the first hole because I knew the course usually yields a lot of birdies,' said Haas, who titled at this event in 1988. 'I just felt like I played well and they would come.'
Haas added a birdie at the 14th and played a sand-wedge within 10 feet of the cup for a birdie at the par-4 17th on his way to a round of 64, a score good enough to possibly entice the veteran to putting off going to the Champions Tour for another year?
'I certainly don't want to forget about it,' Haas said of the elder circuit. 'I feel that if I split my time that I wouldn't give myself the best opportunity to do well on the PGA Tour, nor would I give myself the best opportunity to succeed on the Champions Tour.'
Overnight leader Kenny Perry posted a 3-under 69 at Bermuda Dunes to join Skip Kendall, Kirk Triplett and Geoff Ogilvy in a tie for sixth place at 17-under-par 199.
Robert Gamez played the back nine first at Indian Wells and collected three birdies over his first nine holes before catching fire on the front half.
The 35-year-old ran off seven birdies and an eagle coming home for a 27 on the front nine. Gamez matched the all-time PGA Tour mark for best nine-hole score and also shot a 12-under 60 in the process.
'I guess I finally played well,' said Gamez, who established a new course record at Indian Wells. 'I hit some good shots and some putts, but I knew I was hitting well and starting to strike it well. Then the front nine just clicked.'
Gamez finished at 16-under-par 200 along with Bob Burns, Richard S. Johnson, Loren Roberts and John Senden.
Defending champion Mike Weir finished 10 shots off the pace in a group at 11- under-par 205.