Se Ri Pak carded a 1-under 70 to move into a share of third. She was joined by Carin Koch at 1-under-par 141.
A total of 72 golfers returned to DuPont Country Club Friday morning to complete the opening round after storms forced the suspension of play Thursday.
Daniel was already in the clubhouse Thursday after a round of 4-under 67. She trailed Karrie Webb, who was at 5-under through 15 holes before play was called.
Webb, who became the youngest player to complete the career Grand Slam with her victory here last year, resumed her round and double-bogeyed the par-3 17th en route an opening-round 3-under 68.
'Obviously, I had a lot of momentum going yesterday afternoon, and I probably would have finished my round off a little better than I did this morning,' said Webb.
The 27-year-old began her second round almost immediately and faltered out of the gates with a bogey at the par-4 10th. She recovered with a birdie at the 13th and made it two in a row after she landed her second shot within 12 feet of the cup at No. 14.
However, Webb had a shaky inward nine with bogeys at the second and seventh holes. The Australian salvaged what she could with a 20-foot birdie at the eighth for a round of even-par 71.
'It took a long time before I could trust that the greens were a little bit softer and that the fairways were softer, so the course played extremely long,' said Webb, who stands at 3-under-par 139.
Daniel, who took to the course with a one-shot lead over Webb, also played the back nine first and faired much better initially. At the par-3 13th, Daniel knocked a four-iron three feet from the hole. She converted the short birdie putt to take a two-shot lead.
'No one in that swing that went off this morning really did anything, so I knew the course was probably playing pretty tough or just as tough, and as it turned out, it was,' said Daniel.
The 45-year-old soon found some trouble of her own. At the very next hole, Daniel landed short of the green and three-putted for bogey. She two-putted for bogey at the 15th to fall back into a tie with Webb.
Daniel persisted and regained the lead with a 10-foot birdie putt at the par-3 fifth to return to 4-under.
She added to her advantage at the very last hole after she dropped a sand wedge six feet from the jar. Daniel ran home the putt to finish with a two-shot cushion at the same event in which she earned her first and only major title.
'I was real pleased to end up shooting 1-under because I really didn't hit my irons very well,' said Daniel, who won this event in 1990. 'So as a result, I missed a lot of greens short, but that's not such a bad thing on this golf course. I was able to get it up and down most of the time.'
Pak, who won this event in 1998, collected three birdies and two bogeys to finish four shots off the pace. The 24-year-old also won the U.S. Women's Open in 1998 and captured the Women's British Open in 2001.
Akiko Fukushima and Kim Saiki each shot rounds of 71 to finish tied for fifth at even-par 142.
Michele Redman (69), Rachel Teske (71), Michelle McGann (72), Barb Mucha (73) and Catriona Matthew (73) were knotted at 1-over-par 143.
Annika Sorenstam, who is trying to become the first woman since Pat Bradley in 1986 to win the first two majors of a season, finds herself nine shots off the pace after she failed to make a single birdie.
The 31-year-old, who successfully defended her title at the Nabisco Championship in March, struggled to a 5-over 76 to come in at 4-over-par 146.
The 36-hole cut fell at 8-over-par 150 with 71 players qualifying for the weekend. Among those who didn't make the grade was two-time LPGA Championship winner Laura Davies.
Full-field scores from the McDonald's LPGA Championship