Combine grits, water, and milk in a medium saucepan; mix well. Bring to a boil; stir in sugar and salt. Reduce heat to medium; continue to cook, uncovered, until mixture thickens and liquid is absorbed. Let cool.
Beat egg yolks lightly; stir into cooled grits mixture. Add whipping cream; mix well.
Beat egg whites (at room temperature) until stiff peaks form. Gently fold into grits mixture. Spoon into a lightly greased 1 1/2- quart casserole. Bake at 350° for 50 minutes. Let stand 10 minutes before serving.