Thompson missed the 36-hole tournament record by a stroke at 13-under-par 129. Jimmy Green posted a 128 en route to a runner-up finish to Brian Bateman in 1998.
Bob Burns fired an 8-under 63 and is alone in second place at minus-10. Rick Price shot a 3-under 68 to come in at third place at 9-under-par 133.
Thompson flew out of the gate with a 20-foot birdie putt at the first and a 25-footer for birdie at two. He added another long birdie putt, this time from 35 feet at the fourth.
He closed his front nine with a 15-foot birdie putt at the eighth and made the turn at 11-under par for the championship.
Thompson parred his first three holes on the second nine, then converted a 5-foot birdie putt at the par-5 13th. He dropped a stroke when he three-putted for a bogey at the par-three 14th.
Thompson parred Nos. 15 and 16, then closed his round in style. He drained a pair of 10-foot birdie putts at the 17th and 18th holes to grab his three-shot lead.
It was definitely the putter that propelled Thompson to the lead. He needed only 27 putts on Friday and admitted the flat stick is working.
'I made some great putts, especially those first few holes,' said Thompson. 'My putter feels great. It's going exactly where I'm looking. The putts on those first four holes were dead center. They didn't have a chance of missing the hole.'
Burns birdied three of his first four holes after he started on the back nine. He sank a 45-footer for birdie at the 16th to suddenly find himself at minus-6.
On his second nine, Burns rattled off four birdies in a row from the third, including two 12-footers and a pair of 5-footers. All totaled, Burns moved up 26 places on the leaderboard from the first round.
'Anytime you shoot a 63, there's some luck involved,' admitted Burns. 'It's fun to play golf that way every now and then. It's nice to get a round like this under your belt.'
Tom Carter, one of the three first-round co-leaders, only managed a 1-under 70 and is tied with Tommy Biershenk, who posted a 65 on Friday. The duo is knotted at 8-under-par 134.
Michael Letzig, the other overnight leader, shot an even-par 71 and is tied for sixth with Ron Whittaker (70), Matt Hansen (64) and Phil Tataurangi (68) at minus-7.
The 36-hole cut came at 2-under-par 140 and Brenden Pappas will not get his name into the Nationwide Tour record book. He could have become the first player in tour history to successfully defend a title, but shot a 3-over 74 on Friday to finish at plus-2.