The 15-year-old amateur, who became the youngest LPGA Tour winner at the Canadian Open last year, carded a 10-under par round at Royal Canberra.
South Korean-born New Zealander Ko, who won the New Zealand Open last week, started at the 10th and picked up five shots in her opening six holes to reach the turn in 30.
She added five more birdies on the back nine to lead Colombia's Mariajo Urib by a shot with British Open champion Jiyai Shin two behind after a 65.
"I was in a really good group to start off with,'' said Ko, grouped with top-ranked Yani Tseng and Michelle Wie the first two rounds.
"I was pretty nervous when I saw the draw that I was playing with two of the big names, but I mean the weather was beautiful, I think we all enjoyed our time out there."
World number one Tseng, who won the event in 2010 and 2011, opened with a 68 while Wie shot a 74.