Juli Inkster, who is a two-time winner of this event, was one shot off the lead at 5-under-par 66.
Defending champion Annika Sorenstam, who also won this event in 1998, picked up two birdies over her first five holes before stumbling with a bogey at the par-3 seventh.
The Swede's problems continued around the turn with a double-bogey at the par- 4 10th. She followed that up with a bogey at the 11th to move to 2-over on her round.
Sorenstam was able to recover, however, and did so with two straight birdies from the 12th. She added a birdie at the 17th for a round of 1-under 70.
Michelle Wie, the 13-year-old phenom who won her first USGA title last week at the Women's Amateur Public Links, played the back side first and coasted at even-par over her first nine holes.
Wie jumped into red figures with a birdie at the par-5 13th but bogeyed the par-4 sixth en route to an even-par 71.
Diaz, who has gone without a top-10 finish since the Asahi Ryokuken International Championship, picked up her first birdie of the day at the par-5 third. She kept on rolling with a birdie at the fifth and hit a sand-wedge inside 10 feet for a birdie at the par-4 eighth to make the turn at minus-3 on the Bay Course at Seaview Marriott Resort.
She landed a 9-iron within nine feet of the cup at the par-4 10th for the first of back-to-back birdies. Diaz found a fairway bunker en route to a bogey at the 15th but responded with a birdie at the very next hole.
At the par-5 18th, Diaz reached the green in two and took two putts for a closing birdie.
The 28-year-old has been playing in pain this year because of a torn tendon in her ankle.
'I most likely will have surgery at the end of the year,' said Diaz. 'I've seen about four doctors and I'm going to see a physical therapist after the U.S. Open. I'm trying to play no more than three weeks in a row, then take a week off and we'll see what happens at the end of the year.'
Like Diaz, Stanford also tallied her first birdie at the third. She then hit a wedge to eight feet at the sixth and ran home a 15-foot putt at the seventh to make it two in a row.
Stanford collected two additional birdies on the inward half for her share of first.
'To tell you the truth, I don't know how I ended up there, I felt like I was all over the map,' said Stanford. 'Sometimes that's better for me because then I can focus on just that one shot at a time.'
Lindstrom scatted three birdies over her first nine holes to go out in 33. She reached 4-under with a tap-in birdie at the 10th after her approach stopped inside a foot of the hole.
The 29-year-old ran home a pair of birdies starting at the par-4 12th but faltered with a bogey at the 15th. Lindstrom recovered shortly thereafter with a tap-in birdie at the par-5 16th.