Bring water and milk to boil in large saucepan. Gradually whisk in grits. Reduce heat to medium. Simmer until grits are thick, stirring often, about 20 minutes. Mix in cheese; season with salt and pepper.
Meanwhile, sauté bacon in large skillet over medium-high heat until crisp. Transfer bacon to paper towels. Add mushrooms, onion, bell pepper, and 1 1/2 cups tomatoes to drippings in skillet. Sprinkle with salt and pepper. Sauté over medium-high heat until vegetables are tender and sauce is thick, about 12 minutes. Add shrimp, hot sauce, and 3/4 cup tomatoes to skillet. Sauté until shrimp are just opaque in center, about 4 minutes.
Spoon hot grits onto plates; top with shrimp and sauce.
