'I will say I played better today,' said Woods, who won this event in 1999. 'I felt better over all my shots today than I did yesterday. It's a crazy game. Sometimes you feel terrible and shoot low numbers; other times you feel great and shoot a high number. That's the way the game is. I certainly did feel better today.'
Steve Lowery, Woods' playing partner during round two, shot a 5-under 67 to finish three shots off the pace at 11-under-par 133 alongside David Toms. Retief Goosen was one shot further back at 10-under-par 134.
Woods carried a one-shot lead over Lowery and Toms after the opening round but the advantage had vanished as several of his competitors posted low scores in the morning at Mount Juliet Estate.
The top player in the world was slow getting started and was left with a difficult third shot after his approach at the par-5 fifth stopped just short of a bunker protecting the front of the green. However, Woods chipped his third shot over the sand inside two feet of the cup for his first birdie of the day.
At the par-4 seventh, Woods knocked his second shot within 15 feet and drained the putt for birdie. He picked up another birdie at the very next hole to make the turn at 10-under.
Woods rolled in a four-foot putt for birdie at the 10th and regained the outright lead with a birdie at the 12th after he hit his second shot to five feet.
Woods opened a two-shot lead with a birdie at the 14th to reach 13-under and after Kelly pulled within one with a stretch of three consecutive birdies starting at the 15th, Woods again pulled away with a birdie at the par-5 17th.
'Today I definitely drove the ball a little bit better,' said the 26-year-old. 'I felt a little more confident with my tee shots today. I hit my irons like I did yesterday and I putted like I did yesterday. All in all, I'm very pleased with the way I'm playing.'
Kelly, a two-time winner on the PGA Tour this year, burst out of the gate with four birdies over the first five holes before he found trouble with a bogey at the sixth. Kelly responded with four birdies on the back nine to finish alone in second and is eager to play alongside Woods on Saturday.
'It will be great,' said Kelly. 'It's just playing my game and he's going to do what he's going to do, and I can't really fight him. I've got to just play as well as I can and see what happens after that.'
British Open winner Ernie Els collected six birdies and one bogey for a round of 67. The South African moved to 9-under-par 135 alongside Stuart Appleby and Gary Evans.
'I played really well,' said Els. 'I'm in contention but it all depends on what Tiger does. It seems like he's starting to make some birdies now.'
David Duval matched his best round of the year with a 7-under 65.
'I'm getting a lot of confidence back that I need to get back and that's coming from having success out on the golf course,' said Duval. 'I executed everything I was trying to do. That makes me feel good about today.'
Duval was joined by Rocco Mediate, Davis Love III, Stephen Leaney, Bob Estes, Justin Leonard, Chris DiMarco and Vijay Singh in a tie for ninth at 8-under-par 136.
Mike Weir, who won this event in 2000 at Valderrama, was one shot further back at 7-under-par 137 alongside Michael Campbell, Angel Cabrera, Kevin Sutherland and Niclas Fasth.
Full-field scores from WGC-American Express Championship