Place potatoes and water in a microwave-safe bowl. Cover and microwave on high for 2-3 minutes or until almost tender. Meanwhile, in a small skillet, cook bacon over medium heat until partially cooked but not crisp. Remove to paper towels to drain.
Drain potatoes. On a double thickness of greased heavy-duty foil (about 18 in. square), layer half of the potatoes, bacon, onion, cheese and butter. Repeat layers.
Fold foil around potato mixture and seal tightly. Grill, covered, over medium heat for 12-14 minutes or until potatoes are tender and cheese is melted. Carefully remove foil to allow steam to escape.