The Grove Racing driver was quick across the 20-minute session, initially leading the way with a 1m11.815s.
Halfway through the session he was shuffled back to second by Waters before James Golding enjoyed a brief stint on top.
With five minutes to go Reynolds vaulted back to top spot with a 1m11.487s, which he and engineer Alistair McVean banked on being good enough to get into the Shootout.
That meant Reynolds sat out the final runs, watching on as Waters improved, but not by enough to nab provisional pole.
The final margin between the two was 0.01s, Reynolds now set to run last in the Shootout for pole.
"We made some changes to the car [overnight] and it's obviously much faster, it was a joy to drive," said Reynolds.
"Yesterday I was struggling with front end, feeling the front. We made some small changes to try and help that. I don't think we can race like that because the tires won't last long, so we'll have to rethink our strategy."
Golding ended up third in what was another strong session for PremiAir Racing, Tim Slade's fifth ensuring both cars made the Shootout for a second day running.
Shane van Gisbergen, who crossed the line first yesterday but was later disqualified from the race, was fourth in qualifying, while Chaz Mostert led fellow Mustang drivers Todd Hazelwood and James Courtney in sixth, seventh and eighth.
Jack Le Brocq was a late improver to book a Shootout berth with ninth whole Broc Feeney will run first in the dash for pole.
As was the case yesterday both Dick Johnson Racing Fords missed the Shootout, Will Davison qualifying 11th and Anton De Pasquale 21st.
Nick Percat had another tough session as he qualified just 20th, while both Erebus cars missed the Shootout as well, Brodie Kostecki 15th and Will Brown 17th.
The Shootout kicks off at 12:35pm local time.
