Ko, 16, carded a five-under 65 to join Angela Stanford and Christel Boeljon in a share of the lead at Royal Mayfair.
Last year, Ko set an LPGA Tour record by winning in Vancouver at the age of 15 years, four months.
And she was setting the pace once again with six birdies and one bogey in her round.
Stanford, fresh from her struggles at the Solheim Cup, carded five early birdies to keep up, while Boeljon put herself in contention with a hole-in-one on the 16th as she made up four shots from the 15th hole onwards.
Cristie Kerr and Paula Creamer were one shot further back, while Canada's Jennifer Kirby was part of a four-way tie for sixth place two shots off the lead.