McDowell had set the early pace with six birdies to climb to eight under par on another glorious day in Cork, but he was overhauled later in the day by Ilonen, who mixed five birdies with two bogeys in his round of 68.
McDowell is enjoying the moment in front of what are effectively home fans. "I've played in front of many big crowds before, but maybe none as passionate as the Irish crowd. There's nothing quite like it when a crowd is pulling for you, it's a fun experience. I've never really experienced it before, except perhaps at The Ryder Cup, so I'm looking forward to the weekend.
"It's just fun to be part of this tournament, and fun to be contending. This is my type of golf course, and I'm loving every minute of it out there."
England's Robert Rock and Frenchman Romain Wattel made it a three-way tie for second place alongside McDowell after signing for respective rounds of 66 and 65.
Unfortunately for the huge crowds at Fota Island Resort, Shane Lowry and Rory McIlroy both missed the halfway cut on one over par; but Padraig Harrington is firmly in contention to win his national Open for a second time after carding a round of 67 for a six under par aggregate total.
The leading Australian and only one to make the cut is Wade Ormsby who is in 47th position at the halfway mark.