The Spanish Yamaha rider smashed local Casey Stoner's record with a lap of one minute and 27.899 seconds at Phillip Island on Saturday.
Lorenzo is set for a fascinating duel with championship leader Marc Marquez after the Repsol Honda rider was 0.221 seconds adrift in warm conditions.
Stoner's lap record of 1:28.665 set in 2008 was bettered by three riders, with Lorenzo's team-mate Valentino Rossi (+0.748) to start third.
Honda Gresini's Alvaro Bautista (+0.814) starts fourth and Dani Pedrosa (+0.849) will start from a disappointing fifth.
Lorenzo, who briefly had a seagull stuck in his bike, got Q2 going with a 1:28.527 moments after Randy de Puniet had come off his Power Electronics Aspar.
Marquez bettered that to beat Stoner's record and he held provisional pole until late in the session, when riders returned to the track.
The rookie, who could seal the title on Sunday, set his 1:28.120 before Rossi went into third.
But Lorenzo stole the show with his flying lap and both he and Marquez tried to better it but unsurprisingly failed to leave the reigning world champion at the front of the grid.
Marquez can secure the title with a win on Sunday, but will also need Lorenzo to finish third or worse.
The 20-year-old is aiming to become the first rookie in 35 years to win the premier class title.