As Smith wobbled down the stretch on Friday, Herbert cashed in with a brilliant back-nine blitz to grab a two-shot lead at Murray Downs Golf and Country Club, near Swan Hill.
With three birdies and a miracle eagle after ambling to the turn with eight straight pars, Herbert carded a second-round six-under-par 64 to surge ahead of his celebrated playing partner.
Feeling right at home on the Victorian border, Bendigo-born Herbert is 12 under through 36 holes in pursuit of his first important win in Australia.
Smith is his closest pursuer at 10 under but the first-round leader will rue three painful lip-outs and two other near-misses on the greens in his 67.
The 2022 British Open champion still enjoyed the outright lead before making a mess of the par-5 16th hole as Herbert turned the tournament on its head in a three-shot swing.
As Smith chalked up a bogey, Herbert produced a spectacular blind second shot over the trees, then rattled in the long putt for eagle to send the gallery into a frenzy.
He had the chance to go further in front, only to miss a two-foot birdie putt at the last.
Cameron Smith will play with his LIV partner Lucas Herbert in the NSW Open on Saturday. (Darren England/AAP PHOTOS)
Herbert said a missed putt on the ninth hole served as the "wake-up call" to fire him up.
"Just a bit of a kick in the arse to get going on the back nine," he said.
"Yeah, I would have liked to have made that one there at the last and maybe extend the lead a little bit going on the weekend.
"But I had a couple of good breaks out there so I'm not going to get caught up in that."
In a dream scenario for organisers, two months after combining to help Ripper GC to team glory in the Saudi-backed LIV Golf league, Smith and Herbert will play together again in the final group on Saturday's moving day.
Herbert can't wait.
"I feel like we do both hold each other to a standard out there a little bit," he said.
"You can come back to some country courses and just take the foot off the gas a little bit.
"So I feel like both of us playing together is good for us to sort of push each other a bit.
"It's a good little challenge. We're both here obviously doing our best to support Aussie golf but we're also pushing each other a little bit too."
The two drawcards look very much the players to beat for the Kel Nagle Cup.
New Zealander Josh Geary (65) shares third at nine under with Queenslander Dillon Hart (66), Victorian Matias Sanchez (67) and New South Welshman Corey Lamb (67).
The underdogs are three shots adrift of Herbert and one behind Smith.
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