Overnight leader David Micheluzzi held a one-shot advantage heading into the second day but a 70 pushed the Australian contender down to third place, five shots adrift of Ferguson.
Ferguson, 27, had to retire at last month's European Open in Hamburg but was showing no ill effects on his return to Germany, carding a 64 to get to 13 under and lead the way from Frenchman Romain Langasque.
Ferguson cancelled out a double-bogey with an eagle while also signing for eight birdies in Munich and was happy to be back enjoying his golf.
He said: "It's been quite tough, struggling with vertigo. It makes you feel so funny. You get days where you feel totally normal and think you can play again, like I tried to do in Hamburg and then it came on again and I was like, 'oh no'.
"When you're on the sidelines watching the golf, you realise how lucky you are to play it. I couldn't wait to get back out.
"My first event back at KLM, I was loving it to be honest. Last week in Italy was nice. The weather's been so good here, I love Munich, and I just feel like I'm enjoying it a lot more."
Langasque carded a 65 to get to 11 under, three shots clear of a group containing English pair Jordan Smith and Matthew Southgate, major champion Patrick Reed, 2021 Ryder Cup player Bernd Wiesberger and Micheluzzi.
There were emotional scenes on the 18th green as two-time Masters champion Bernard Langer missed the cut to bring the curtain down on his DP World Tour career on home soil.
The 66-year-old has 42 wins on the Europe-based circuit, winning the Order of Merit twice, and revealed his 50-year association with his home tour had been a "dream come true".
"I was able to live that dream for 50 years," he said. "I have wonderful memories from all over the world, not just in Europe but Asia, Australia, Japan, America, South Africa. I was able to travel the world and meet with kings and queens.
"I played golf with all sorts of people, whether they were successful businessmen or just the average butcher or bricklayer or whatever, it was fun, it was great."
