Preheat oven to 350 degrees F. Stir milk and water gradually into Gravy Mix with whisk in small saucepan.
Stirring frequently, cook on medium heat until gravy comes to boil. Reduce heat to simmer. Stir in 3/4 cup of the cheese. Simmer 1 to 2 minutes or until cheese is melted and mixture has thickened slightly. Spoon into 1-quart baking dish. Sprinkle with remaining 1/4 cup cheese.
Bake 5 to 10 minutes or until cheese is melted. Serve with French fries.