Beat butter at medium speed with an electric mixer until creamy; gradually add 1/2 cup sugar, beating well. Add vanilla, beating until blended. Gradually add flour, beating just until combined.
Process pistachios in a food processor until coarsely ground. Place ground nuts on a plate.
Shape dough into 1" balls. Working over plate of nuts with 1 ball at a time, sprinkle about 1 tablespoon nuts over ball, pressing nuts gently into ball. Repeat procedure with remaining balls and nuts. Place balls on ungreased baking sheets; flatten to 3/8" thickness. Sprinkle with sugar.
Bake at 350° for 10 minutes or until lightly browned. Immediately remove to wire racks to cool completely.