In a large saute pan cook bacon until crisp. Remove bacon from pan and drain on paper towels. When cool roughly chop and set aside. Remove all rendered fat except 2 tablespoons in the saute pan and add butter and garlic. Saute garlic for 2 minutes. Add mushrooms and continue to cook until mushrooms are tender. Salt and pepper. Stir in chopped parsley. Keep warm until grits are finished cooking.
In a medium saucepan, over high heat, bring water, cream, butter, salt and pepper to a boil. Stir in the grits and bring back to boil, stirring constantly. Reduce heat to medium-low and simmer, stirring frequently for about 20 minutes.
Fold cheese, mushroom mixture and bacon into grits and serve.