World number three Smith fired a four-under par 68 to stand on 10-under 134 after 36 holes in the 54-hole shotgun start event at Rich Harvest Farms.
Two-time major winner Dustin Johnson fired his worst of 14 rounds since jumping to LIV Golf, a 74, to share second on 137 with fellow American Peter Uihlein, who fired a 66.
England’s Laurie Canter and South African Charl Schwartzel shared fourth on 138 in quest of a $4 million top prize from a $25 million purse.
The Saudi-backed upstart series has caused turmoil in the golf world as several big-name stars have defected from the US PGA Tour to the rival circuit, prompting the PGA to issue indefinite bans on former members.
We have a new leader 😏🇦🇺#LIVGolf #LIVGolfChicago #PUNCHGC https://t.co/batp2W82Iy
— LIV Golf (@LIVGolfInv) 1663458272000
Smith, who captured his first major title in July at St. Andrews before jumping to LIV Golf after the PGA Tour playoffs, began the day three back of playing partner Johnson but charged into the lead.
“It was tricky out there,” Smith said. “I got a couple of breaks and DJ didn’t quite make the putts he usually does.
“Game is feeling good. I’m looking forward to a great round tomorrow.”
Johnson opened with a bogey at the first hole and both birdied the par-5 second.
Smith curled in a long breaking birdie putt at the fourth while Johnson lipped out, settling for par.
Both birdied the eighth but Smith missed an eight-footer for par at the par-5 11th to stumble two adrift.
Day two in Chicago ✅ #LIVGolf #LIVGolfChicago https://t.co/fxJd5nKLgC
— LIV Golf (@LIVGolfInv) 1663467115000
Johnson sent his approach over the green at the par-3 13th and lipped out on a six-foot par putt. Johnson also made bogey at the par-3 16th.
Smith sank six-foot birdie putts at the 17th and par-5 18th while Johnson went over the 18th green and made bogey to leave the Aussie ahead by three.
Phil Mickelson, among the first to break from the PGA for LIV Golf, says the two sides need to unite after hard-line remarks against such a move by PGA playoff winner Rory McIlroy, PGA commissioner Jay Monahan and LIV Golf commissioner Greg Norman.
“The PGA Tour for the last 20 or 30 years have had all the best players in the world. That will never be the case again,” Mickelson said.
One round to go ‼️#LIVGolf #LIVGolfChicago https://t.co/qrGqGDTX1n
— LIV Golf (@LIVGolfInv) 1663454551000
“LIV Golf is here to stay, and this type of divisive talk is doing nobody good. The best solution is for us to come together.”
Mickelson, a six-time major winner, and LIV Golf have filed an anti-trust lawsuit against the PGA that is set to go to trial in 2024.
The 52-year-old US left-hander said LIV appeals to a younger fan base but golf also needs the “historical” base the PGA provides, declaring, “The inclusion of LIV Golf in the ecosystem of the golf world is necessary.”