01 - Combine water, whole milk, and kosher salt in a medium saucepan. Bring to a gentle simmer over medium heat, stirring occasionally to dissolve the salt.
02 - Gradually whisk stone-ground grits into the simmering liquid in a steady stream. Whisk continuously to prevent lumps from forming and ensure even distribution.
03 - Reduce heat to low and maintain a gentle simmer. Cook for 20–25 minutes, stirring frequently with a wooden spoon to prevent sticking. The grits are done when tender and the mixture has thickened to a creamy consistency.
04 - Remove from heat. Stir in unsalted butter and cream cheese until completely melted and smoothly incorporated. The mixture should become glossy and velvety.
05 - Add shredded sharp cheddar cheese, folding gently until fully melted and the grits are uniformly creamy and smooth. The cheese should be completely integrated with no visible streaks.
06 - Season with black pepper and optional cayenne pepper. Taste and adjust salt as needed. Serve immediately while hot, garnished with additional shredded cheese or fresh chopped chives if desired.