Woods, searching for his 76th PGA Tour victory, finished his third round in fine style with a 16 foot birdie putt on the 18th, highlighting his outstanding putting throughout the tournament so far.
The 14-times major winner finished the day at 18-under on 198 for the tournament, while McDowell's three-under par 69 put him on 14-under at 202.
The debate over whether Woods is "back" will not be over until he wins a major championship again, but on this display he will be the favourite, on form as well as reputation, at the Masters next month.
Woods began his round in blistering fashion by birdying his first three holes and added four more before heading to the clubhouse with only two blemishes on his card - a bogey on the 5th and on the 17th.
The bogey on the penultimate hole came courtesy of a freak incident where his ball stuck in the top of a palm tree, forcing him to take unplayable lie and a penalty stroke.
McDowell, also striding the course in confidence, made an equally lightning start with an eagle on the first and a birdie on the third, reaching the turn at four-under.
The Northern Irishman lost his momentum with a bogey on the 11th and a double on the 14th, where he got in trouble in the rough.
The 2010 U.S. Open winner bounced back though with a superb eagle on the par-four 16th, where he drove over the back of the green and then superbly chipped in from 22 feet.
Phil Mickelson and Steve Stricker are both five shots off the lead, tied for third place, after shooting rounds of 69.