Preheat oven to 350F and grease a 2-quart casserole dish.
Bring water and salt to a boil in a large saucepan.
Whisk in grits and cook 15-20 minutes until creamy and tender, stirring to avoid lumps.
Reduce heat to low and stir in butter and cream cheese until melted.
Turn off heat and add cheddar cheese and Tabasco, stirring until melted.
Slowly fold in beaten eggs while stirring quickly to prevent scrambling.
Fold in diced jalapeños.
Transfer mixture to prepared casserole dish and spread evenly.
Sprinkle top with smoked paprika.
Bake 35-40 minutes until top is set and lightly golden.
Let rest 5 minutes before serving.