Preheat the oven to 350 degrees F (175 degrees C). Lightly grease a medium baking dish.

Bring milk to a boil in a large pot over medium heat. Melt 1/2 cup butter in boiling milk. Gradually mix in grits; cook for 5 minutes, stirring constantly. Remove from heat and season with salt and pepper. Beat with a whisk or electric mixer until smooth. Mix in Cheddar cheese and 1/3 cup butter. Transfer to the prepared baking dish and sprinkle with Parmesan cheese.

Bake in the preheated oven until firm, about 1 hour.