Cook grits according to package directions. Stir in cheese product until melted. Stir together milk and eggs; stir into grits mixture.
Melt butter in a large skillet over medium heat; add onion and next 3 ingredients, and sauté until tender. Stir onion mixture, 1 cup shredded cheese, and ground red pepper into grits mixture. Pour into a lightly greased 13- x 9-inch baking dish.
Bake at 350° for 30 minutes; sprinkle with remaining 1 1/2 cups shredded cheese, and bake 5 to 10 more minutes or until cheese melts.
Note: For testing purposes only, we used Velveeta Pasteurized Prepared Cheese Product.