The night before: cook the sausage in a large skillet over medium-high heat, breaking it up with a spoon, until browned, 8 to 10 minutes. Add the bell pepper and onion and cook until softened, 4 to 5 minutes. Drain off any excess fat.
Grease a 9x13-inch baking dish. Spread the bread cubes in an even layer and spoon the sausage mixture over the top. Sprinkle on 1 cup of the cheddar.
In a large bowl, whisk the eggs, milk, dry mustard, salt and pepper until smooth.
Pour the egg mixture evenly over the bread mixture and press gently with a spatula so the cubes soak. Cover with foil and refrigerate at least 8 hours or overnight.
Christmas morning: heat the oven to 350°F. Bake the covered casserole straight from the refrigerator for 30 minutes.
Uncover, sprinkle with the remaining 1/2 cup cheddar and bake until puffed, golden and a knife inserted in the center comes out clean, 30 to 35 minutes more (160°F in the center).
Let stand 10 minutes, then cut into 8 pieces and serve warm.