Lee, seeking her ninth career LPGA title, matched the day's low round to stand on 12-under 204 after 54 holes at Upper Montclair Country Club in Clifton, New Jersey.
"I think I was pretty solid all day," Lee said. "I made a lot of birdies on the front nine and then one eagle on the back and then I made pars coming in. I feel like I had a pretty good day."
South Korea's Ryu Hae-ran, a 22-year-old LPGA rookie, shared second on 207 with American Angel Yin. India's Aditi Ashok, South African Ashleigh Buhai and South Korea's third-ranked Ko Jin-young - a two-time Founders Cup winner - were on 208.
Lee was confident about her chances in Sunday's final round but wary of when to be cautious and aggressive.
"I'm sure I'll be nervous coming down the first hole but I think they're good nerves," Lee said.
"I feel pretty good about the golf course and how I'm hitting it so I'm just going to play my game, play aggressive when I can and smart when I have to, and stick to my processes and my game plan.
"I feel pretty good about where I'm at. Hopefully I can put up another good score."
Lee, who won her first major title at the 2021 Evian Championship, will defend her 2022 US Women's Open title in July at Pebble Beach.
Lee said she hasn't found defending her crown this week a large chance from winning last year.
"It hasn't really been that different," she said. "I still have to put up a score and hit the same golf shots. At the end of the day you still have to play. It has been good."
Lee made a bogey-birdie start but caught fire with a birdie at the par-3 sixth hole and closed the front nine with back-to-back birdies at the par-3 eighth and par-5 ninth.
The woman from Perth added an eagle at the par-5 12th and parred in from there.
Ryu birdied the par-5 14th to pull within one of the lead but then stumbled back with bogeys at the par-3 15th and par-3 17th holes.
World number 45 Ryu, coming off a career-best showing with a share of sixth at Los Angeles, shot 70 while Yin fired a 68.
Yin, who lost a major playoff to American Lilia Vu in last month's Chevron Championship followed a bogey at the par-5 second with back-to-back birdies at the third and fourth holes.
Yin, chasing her first LPGA victory, added back-to-back birdies at the par-5 ninth and par-4 10th and another at the par-5 12th.
Ashok fired a 71, stung by a double bogey at the 16th, while Buhai shot 68 with six birdies but a double bogey at the third.
Ko, a two-time LPGA Player of the Year and twice a major champion, shared the 36-hole lead but fell back with a 72 as she chases a 15th career LPGA title and second of the year after defending her Singapore crown in March.
Australia's Sarah Kemp, who shared the 36-hole lead, fell seven adrift with a 75.
