Preheat oven to 400°F (200°C). Boil water and milk in a saucepan, then stir in instant mashed potatoes. Set aside.
In a large bowl, combine ground beef, onion, brown sugar, Worcestershire sauce, bread crumbs, and egg. Mix until well combined.
Press the meat mixture evenly into an 8-inch square baking dish to form the base.
Spread prepared mashed potatoes evenly over the meat layer using a rubber spatula.
Sprinkle shredded cheddar cheese over the potatoes and top with bacon bits.
Cover with foil and bake for 30 minutes. Remove foil and bake for 10 more minutes. Cool slightly before serving.