Dennis (BMC) claimed his first Giro d'Italia stage win but race leader Yates and Mitchelton-Scott cleared a significant hurdle in their bid for overall glory.
No British rider has ever won the Giro but Yates will go into the final five days as the clear favourite after surviving the time trial with a 56-second lead.
His time of 41min 37sec over the 34.5km course from Trento to Rovereto was only 22nd best on the day but it was enough for the 25-year-old to stay clear of defending champion Tom Dumoulin (Sunweb).
Dumoulin, the world time trial champion, took 75 seconds out of Yates, but had started the day two minutes and 11 seconds down in second place.
Dennis, with a time of 40 minutes exactly, moves up to sixth overall with the stage victory - the Adelaide rider's fourth on grand tours - and he was delighted to be back in the top 10.
"It's pretty good to beat time-triallists like Tony Martin and Tom Dumoulin," the 27-year-old said. "Obviously I wanted to come here to win a stage and I was hoping to do that in Israel in the opening time trial but it wasn't the case but I'm glad I could get one here today," he said.
"To come here and repay the team for all their hard work and jump back into the top 10 is a big day for me.
"Basically, I just have to hold on for as long as possible. There's going to be guys going crazy in the last week. I think there could be some guys hurting. I think that I'll be hurting a bit as well. I'm just going to take it each day and try and hold on to that top 10."
The Australian-owned and run Mitchelton-Scott team's best result in the three grand tours - Giro d'Italia, Tour de France and La Vuelta - since their inception in 2011 was Colombian rider Esteban Chaves' runner-up finish in the Giro two years ago.
Yates had become the first rider in 15 years to win three stages on the Giro in the leader's pink jersey after launching a bold solo attack with 17km to go in stage 15 on Sunday.
And returning to the road after Monday's rest day, he was delighted to keep the pink jersey and said doing so will allow him to take a different approach into the final week after some aggressive racing so far.
"I'm really happy. The first half I felt good, I had a good rhythm and I felt I was going well, I wasn't losing so much time. I was really trying to hold my position," he said.
"But the final 10km, I really died a thousand deaths. I thought I would lose a lot more time but I managed to hang on.
"It really changes my tactics for the coming days, I think. Unfortunately for the fans, I can be a lot more defensive."
Team Sky's four-time Toru de France winner Chris Froome recorded the fifth best time of the day with a 40:35, which sees him move up to fourth overall, three minutes and 50 seconds down, after Frenchman Thibaut Pinot of Groupama-FDJ struggled.
Italy's Domenico Pozzovivo remained third but slipped three minutes, 11 seconds behind Yates.