Preheat oven to 350 degrees F (175 degrees C). Lightly grease a medium baking dish.
Bring the milk to a boil in a pot over medium heat. Melt 1/2 cup butter in the boiling milk. Gradually mix in the grits, and cook 5 minutes, stirring constantly. Remove from heat, and season with salt and pepper. Beat with a whisk or electric mixer until smooth. Mix in the Cheddar cheese and 1/3 cup butter. Transfer to the prepared baking dish, and sprinkle with Parmesan cheese.