Watson and North matched the 36-hole scoring record with their total of 23-under-par 121. Charles Coody and Dale Douglass set the record in 1990.
This event had been an individual stroke-play event the last six years, but returned to a team event this year.
Brad Bryant and Lonnie Nielsen (60) and Jeff Sluman and Craig Stadler (63) are tied for second place at 19-under 125. David Edwards and Bernhard Langer are one stroke back after posting an 11-under 61 in the second round.
"We played very equally today," Watson said. "It was a day that you'd like to have out here. A few times, the first guy that putted made it. That's the type of position you want to put yourself in."