Preheat oven to 350 degrees. Grease an 8-inch or similar casserole dish.
Combine water and salt in a large saucepan. Bring to a boil, whisk in grits. Cook for 5-7 minutes until slightly thickened; remove from heat.
Add 1 1/2 cup shredded cheddar and butter until melted. Add milk, eggs, jalapeno, and pepper. Whisk until when combined.
Pour into prepared casserole dish; top with remaining cheese.
Bake until golden brown. about 50 minutes. Let stand 10 minutes before serving.