Combine grits, water, salt, and 1 tablespoon butter in a medium saucepan. Cook over medium- high heat 5 minutes. Reduce heat; cover and simmer 10 minutes. Add remaining butter, milk, egg yolks, pepper, paprika, and cheese; stir until cheese melts.
Beat egg whites (at room temperature) until stiff peaks form. Gently fold into grits mixture. Spoon into a greased 2-quart soufflé dish; sprinkle heavily with additional paprika. Bake at 350° for 45 minutes. Serve immediately.