Jon Mills carded a 1-under 71 to move into second place at 6-under-par 138.
Ryan Armour posted one of the top rounds of the day as he shot 6-under 66 to climb into third place. He is joined by Lucas Parsons (68), Scott Sterling (69) and Bill Lunde (70) one stroke behind Mills at minus-5.
Diaz began his day on the 10th tee at the Clearwater Resort four strokes behind overnight leader Dean Alaban. Diaz managed just one birdie on his first nine holes and that came at the par-4 13th.
On the front side, Diaz birdied the first for the second straight day. The Australian then caught fire midway through the front side.
He converted a birdie chance at the par-3 fourth. Diaz came right back with a birdie at the fifth and made it three straight when he sank a birdie at No. 6. He finished his round with three straight pars.
Mills did not get off to a good start as he bogeyed the par-4 12th. He then stumbled to a double bogey at the very next hole to drop to minus-2.
The Canadian fought back with consecutive birdies from the 17th to head to the front nine at plus-1 for his round and 4 under overall.
Mills birdied the second and fourth before grabbing a share of the lead at 7 under with a birdie at the sixth. However, he faltered to a bogey at the very next hole to fall into a share of second place.
Alaban, who held the overnight lead, struggled after birdieing the first. That birdied moved him to minus-7, but he stumbled to three bogeys and one birdie the rest of the nine. Around the turn, he faltered to two more bogeys but did notch one birdie to close with a round of 2-over 74.
He is joined at 4-under-par 140 by Richard Best, Jason Enloe, Gareth Paddison, David Smail, Brendan Jones and Craig Jones.
Former PGA Tour winner Franklin Langham shot 3-under 69 to move to 3-under-par 141. He is joined there by 11 other players including last week's winner Euan Walters and Doug LaBelle II.
The cut line fell at even-par 144 with 62 players advancing to the weekend. Barry Cheesman, Doug Garwood and Zoran Zorkic were among those surviving one the number.