Wayne Levi stands alone in second place at 6-under-par 66.
John Jacobs, the 1999 winner here, and Dana Quigley, the 2003 champion, each posted rounds of 5-under-par 67. They were joined in a tie for third place by Vicente Fernandez, Morris Hatalsky and Craig Stadler.
Watson, who put off a pair of surgeries in the off-season, showed no ill affects of the shoulder and hip injuries that slowed him in 2004. He rolled in a 6-foot birdie putt at the first to get his round going.
The 55-year-old two-putted for birdie at the fourth and drained a 45-footer at the fifth at Hualalai Golf Club to climb to minus-3. Watson came back with a birdie at the par-5 seventh.
Watson two-putted for birdie on the par-5 10th to grab a share of the lead at 5 under. He broke a seven-way tie for the lead when he drained a 10-foot birdie attempt at the par-3 12th.
The four-time major championship winner on the Champions Tour birdied the 14th, to give him four birdies on the four par-5s.
Watson came right back to birdie the 15th from 18 feet out to take a two-stroke lead after the first round. The 64 was his lowest round since he posted a 62 in the second round of the 2003 JELD-WEN Tradition.
'The long putt I made on No. 5 was the key putt to the round,' said Watson. 'You can shoot low scores when you putt well. I changed my putting stroke a little when I came here and it worked. The change in putting was a little out of desperation so it was nice to shoot 64 today.'
Levi got going as converted back-to-back birdie tries from the par-5 fourth. He headed to the back nine at minus-3 after he sank a 12-foot birdie putt at the par-3 eighth.
The 52-year-old Levi then two-putted for birdie at the 10th. At the next par-5, No. 14, Levi again walked away with a two-putt birdie that moved him to minus-5. He closed his bogey-free round with a birdie from 8 feet out at the par-3 17th.
'Ever since I came over here I've played well,' Levi said. 'I don't know where all this good game is coming from, but I hope it stays.'
Fuzzy Zoeller, the defending champion, heads a group of players at 4-under-par 68. He was joined there by Tom Purtzer, D.A. Weibring, Rodger Davis, Bob Gilder and 1998 champion Gil Morgan.
A pair of former champions, Hale Irwin (1997) and Larry Nelson (2001), head a group of players one stroke further back at minus-3. They were joined there by seven other players including Bruce Fleisher and Peter Jacobsen.