Lee took the clubhouse lead after she carded a 5-under-par 68, after she bogeyed her final hole. Lee was one-under at the turn; but four birdies on the back nine saw her take a one-stroke lead over Thailand's Ariya Jutanugarn.
The strong field at the Open includes six of the world's top 12 players.
Lee said: "Now I know how to play this golf course better than when I last played here," said Lee, who missed the cut when she last played at Royal Melbourne three years ago.
She also revealed her goal for the tournament, saying: "There are lots of Lees here. I want to be the most famous Lee.
"That's my goal."
The Australian Open, which boasts a purse of $1.2 million, is co-sanctioned by the US LPGA Tour.