Beat butter at medium speed of an electric mixer until creamy; gradually add sugar, beating well. Add eggs, one at a time, beating after each addition.
Combine flour, baking powder, and salt; add to butter mixture alternately with grapefruit juice, beginning and ending with flour mixture. Mix at low speed after each addition until blended. Gradually add milk. Stir in grapefruit rind and vanilla. Pour batter into 2 greased and floured 9" round cakepans.
Bake at 350° for 25 minutes or until a wooden pick inserted in center comes out clean. Cool in pans on wire racks 10 minutes; remove from pans and let cool completely on wire racks.
Spread frosting between layers and on top and sides of cake.