Wallace, who won the Portugal Open in May, carded five birdies and a single bogey to hold his overnight lead on 17-under-par, with home hope Molinari and last week's Alfred Dunhill Links Championship winner Tyrrell Hatton of England two shots back in second.
South African George Coetzee was a further shot back after firing two eagles in his 65, with Thailand's Kiradech Aphibarnrat also on 14 under.
"I'm going to go out, fight as hard as I can and hopefully be standing here with the trophy tomorrow (Sunday)," Wallace told europeantour.com.
"Like I said yesterday and the day before, I'm playing some really nice stuff."
Wallace started the day alongside Australian Marcus Fraser on 13 under par, two shots clear of their nearest challengers.
Molinari, who had led after the first round, jostled back into contention, taking advantage of favourable conditions at Golf Club Milano with five birdies for a five-under par 66.
"I think the game has been improving throughout the week, which is important," said the Turin native.
"I'm happy to be in the mix."
Race to Dubai leader Tommy Fleetwood of England posted an eight-under-par 63 to sit on 13 under.