For the shrimp: In a large skillet set over medium-high heat add the bacon and cook until crispy, 4 to 5 minutes, then transfer to a paper-towel-lined plate. Coarsely chop the bacon and set aside. Sprinkle the shrimp with salt and pepper on both sides and add it to the pan. Cook until the shrimp starts to turn pink, then flip and cook the other side until pink, about 2 minutes per side (they do not need to cook all the way through at this point). Set aside.
Using the same pan, reduce the heat to medium-low and add the butter, celery, garlic, onions, peppers and 1/4 teaspoon salt. Saute until the onions are translucent, 7 to 10 minutes. Add the tomatoes with their juices, 1/2 cup water and the seafood seasoning. Stir to mix, cover, and cook until the tomatoes break down and the sauce begins to blend together, 10 to 15 minutes, stirring occasionally. Add the shrimp back to the sauce to cook through, 3 minutes.
For the grits: In a large saucepan set over medium-high heat, bring 2 1/2 cups water, the milk and 1 1/2 teaspoons salt to a boil. While whisking, slowly add the grits. Keep whisking for about 15 minutes. The grits should be creamy at this point. Add in the cheese and butter and stir until the cheese melts. Season with salt and pepper.
To serve, scoop the grits into shallow bowls, then top each with some shrimp mixture, chopped bacon and green onions.