Preheat the oven to 350°F (175°C). Grease a 9x13-inch baking dish with butter or nonstick spray.

Heat a large skillet over medium. Add the sausage and brown, breaking it up with a spoon, about 6–8 minutes. Drain excess fat on paper towels.

In the same skillet, add the chopped onion and diced red pepper. Sauté until softened, about 5 minutes. Remove from heat and combine with the sausage.

In a large bowl, toss the cubed bread with the cooked sausage mixture and both shredded cheeses until evenly distributed.

In a separate bowl, whisk together the eggs, milk, dry mustard (if using), salt, black pepper, and cayenne until smooth and combined.

Pour the egg mixture evenly over the bread mixture in the bowl. Stir gently to coat, then transfer into the prepared baking dish. Press the bread down lightly so it soaks up the custard.

Let the assembled casserole sit at room temperature for 10–15 minutes to allow the bread to absorb the custard. For best results, cover and refrigerate overnight.

Bake uncovered for 45–55 minutes. The top should be golden and the center set (a knife inserted in the center should come out mostly clean).

Remove from the oven and let rest for 10 minutes before slicing and serving.