The fast Honda on the grid belongs to James Hinchcliffe, who will start sixth.
Scott Dixon has claimed the pole position.
Charlie Kimball crashed near the end of practice, damaging his left side after exiting Turn 11, near where Montoya crashed his vehicle.
"It'd be so great to win here, but I just always wanted to give the Toronto fans a good result to cheer for because they've been so supportive day-in and day-out from the start of my IndyCar career". Just one lap later his Penske teammate Juan Montoya continued his streak of DNF's at Iowa, blowing an engine on lap 180.
That sent Newgarden to the pits, the team also switching him from black tires to softer reds. The incident promted a review but no action was taken. Newgarden meanwhile, nearly lost a lap, but it cued up a fearless charge from the rear.
The IndyCar Series points leader finished his fastest lap in one minute 1.7081 seconds. Race distance: (149.2 miles, 85 laps) Last year: Josef Newgarden picked up his first IndyCar win in Toronto.
Power began the race third in the standings and 75 points back. Will Power will start fourth and Sebastien Bourdais fifth. Carlos Munoz qualified a team-best 15th, Ryan Hunter-Reay was 18th, Alexander Rossi was 19th and Marco Andretti was 22nd - last in the field. I told the guys it was going to take a magic lap to advance, I knew it. "One-third of the lap roughly is completely different than it has been for as long as I've been racing here". He failed to qualify in the top 10, only getting 11th. Pagenaud has already served up three wins in the 2016 season.
The pit cycle began early, with predictions among strategists that the pit window would be lap 62-70. Dale Coyne took the bait and pitted Daly, SPM did the same with Hinchcliffe, but the frontrunners stayed out.
Hunter-Reay has looked good on street tracks this season.
When the caution lifted and racing resumed, Power was lying second - but front-runner Tony Kanaan didn't have enough fuel to maintain his lead and Power sailed to a 1.5-second victory over Brazilian Penske team-mate Helio Castroneves.
Bourdais returns as the fastest vehicle after being the quickest driver during the first practice. A lap later, Bourdais also hit pit road, switching from reds back to blacks. "They were waiting to see feedback from [practice] Session 1, but I'd be surprised if they switch it to the back stretch, especially from a promoter's standpoint". Instead, when the pitlane opened they crawled round for their final stop followed by Montoya, Kimball, Montoya, Filippi, Rahal. He edged teammates Helio Castroneves and Will Power for top honors.
Dixon said he was disappointed with his first few laps in final qualifying. Other short odds to win are Simon Pagenaud (+350) and Scott Dixon (+500).
A third practice is set for 9:45 a.m. ET Saturday (streamed live on RaceControl.IndyCar.com), with qualifying airing live on NBCSN at 1:30 p.m. ET. The green flag returned on lap five. Qualifying fourth was the fastest Ganassi driver, Max Chilton.
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