Hunter-Reay, the IndyCar series leader, completed the 2.2-mile, 13-turn circuit in the fastest time of one minute 17.23 seconds in the final qualifying session at the City Centre Airport.
He will start 11th, however, because his Andretti team is serving a 10-spot grid penalty for an unapproved engine change after the Toronto Indy two weeks ago.
That bumps up Franchitti, who finished second in qualifying, and puts third-place finisher Ryan Briscoe beside him on the front row for the start of the 75-lap race.
"It's certainly unfortunate to be taking the grid penalty with our first pole this year — and my first pole in a long time (2004) — but we'll take it for sure," said Hunter-Reay.
"(Starting) 11th is better than starting 15th or 16th."
Alex Tagliani of Lachenaie, Que., qualified fifth while James Hinchcliffe of Oakville, Ont., was 12th.
Hunter-Reay is leading the IndyCar series with 336 points — the first American in front since Sam Hornish Jr. in 2006 — and is also going for his fourth win in a row.
Those hopes looked dashed Friday as Hunter-Reay struggled with the car in practice, followed by the engine change-out announcement.
The Chevrolet engine was changed as a precaution after Hinchcliffe, his teammate at Andretti, saw his engine mysteriously bleed out horsepower in the Toronto Indy.
Hunter-Reay's chances were further improved Saturday when his main rival for the title, Will Power, missed the cut-off for the final elimination round to qualify 7th.
Power's problems worsened post-race, when his Penske team announced they were changing out the engine in his car, moving him down to 17th on race day.
Power has been the points leader for most of the season and is just 35 points back of Hunter-Reay.
The qualifying winner was determined in three elimination sessions among the 25 drivers, with the slowest drivers in each session dropping off until a race-off among the final six.
The weather tested the drivers. The first round was on a dry track, followed by a rain-soaked track, followed by a drying track.
Teams were forced to decide whether to run on rain tires or the faster softer red ones and whether to go on track early or late to avoid the rain.
"That session was white knuckle, I'll tell you that much," said Hunter-Reay.
"You constantly had to be on edge. The line between getting a lap in and throwing it off track was very, very small."
Power, in fact, posted the fasted time of qualifying (at one minute 15.95 seconds) in the opening elimination round before rain hit the track.
Hunter-Reay's winning time in the third round was 1:17.23 at 103.7 miles per hour.
He said the race will still be a challenge, especially with defending champion Franchitti in front.
"These races change so much in the first 15 laps, it could be turned on its head," he said.
"All these (top six) guys will be up there and I have a long way to go from 11th."
Tagliani said he likes his chances for victory starting high on the grid.
"The guys (on the team) are doing a fantastic job and the chemistry is good," he said.
Tagliani is a distant 22nd in the standings. He said his No. 98 car has been strong all year but has been done in by different problems in different races.
"We're right there. We have plenty of speed," he said.
"Hopefully nothing else will happen through the end of the season and we can close the deal in a race."
Hinchcliffe, fifth in the overall points race, said his crew didn't have time between sessions to adjust problems on his No. 27 GoDaddy Dallara.
"I had no grip and was hanging on for dear life out there," said Hinchcliffe. "Luck hasn't been going our way lately."
The engine changeouts have brought parity, unpredictability, and criticism to the starting grids this season.
Almost all drivers have incurred penalties at one time or another.
After using Honda engines exclusively since 2006, IndyCar changed to 2.2-litre turbocharged V6s this year and opened the competition to Chevrolet, Lotus and Honda.
To keep costs down and reduce the gap between big-budget and low budget teams, each team is allowed a maximum of five engines for the season.
Dixon and Simona De Silvestro are on their sixth engines and therefore receive the 10-spot penalties in Edmonton.
Hunter-Reay and Power come under a different category. Teams are also penalized if they change out an engine before it reaches its 1,850 mile limit.
Briscoe said the engine competition and the penalties are a work in progress, but are beneficial in the long run.
"I think you have to have something in place so that you can't just change engines every session," said Briscoe.
"We've probably seen more penalties than everyone would like to see, but (improvement) will come with experience and reliability down the road.
"You need to control it somehow for the cost and development."
Notes: Colombian rookie driver Carlos Munoz started at pole and drove to his first victory Saturday at the Indy 100 race on the City Centre Airport track. Munoz held off fellow countryman Sebastian Saavedra by more than eight seconds for the win. Esteban Guerrieri, from Argentina, was third, 13 seconds off the pace. Guerrieri remains first overall in the IndyLights standings.