Bruce Lietzke posted a 3-under 69 to move into second place at 6-under-par 210. Wayne Levi, one of three overnight co-leaders, posted an even-par 72 to end at minus-5. He was joined there by Bob Gilder (65) and Morris Hatalsky (71).
Nelson began the day in 11th place at 2 under, three behind the leaders. He had a steady start at The Hills Country Club with seven straight pars to begin his round.
At the par-5 eighth, he stuck a 5-iron within 3 feet to set up eagle to get to minus-4. Around the turn, he rolled in a 20-footer for birdie at the 10th.
'I knew when I eagled the eighth, I got back in it and figured if I could make par at nine and have a good backside, I'd have a chance,' Nelson said.
Nelson dropped a 7-iron within 15 feet of the cup at the 12th and calmly sank that birdie putt. The 56-year-old hit 7-iron to the par-3 16th. He found the green, but was some 40 feet from the cup.
However, he drained the lengthy birdie putt to move ahead of the pack at 7 under. He parred the final two holes and waited to see if he would be caught. No one did catch him and he went to celebrate his 18th Champions Tour win.
'It's really nice to win, especially in Texas,' said Nelson, who picked up $240,000 for the win. 'I didn't hit the ball well, but I did think well. I didn't make any major mistakes today. Anytime you can do that on this course, you're doing well.'
Lietzke began the day two shots behind the leaders, but stumbled to a bogey at the first. That was his lone mistake of the day though.
The reigning U.S. Senior Open champion birdied the sixth and eighth to get to 4 under. He then parred the ninth and 10th.
Lietzke dropped in back-to-back birdies from the 11th to claim the lead at 6 under. However, he only managed to par in to finish second.
Levi was joined in the lead after Round 2 by Mark McNulty and 68-year-old Bob Charles.
McNulty struggled to a 3-over 75 to end at 2-under-par 214 in a tie for 14th. Charles was even worse off. He faltered to six bogeys and a double bogey. He did manage to birdie two of his last three holes to end at minus-1.
Gil Morgan closed with a 5-under 67. He was tied by Jose Maria Canizares and Isao Aoki at 4-under-par 212.