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In a mixing bowl, whisk together the water, yeast, and 1 tablespoon sugar. Let sit until foamy, about 10 minutes. Add the milk, egg, butter, and salt to the bowl and whisk to combine.
Slowly add the flour mixture to the wet ingredients, stirring until a smooth, tacky dough forms (you can also do this in a stand mixer on low speed). Scrape the dough to a greased bowl and turn it over a couple of times. Cover the bowl with plastic wrap and let sit at room temperature until the dough doubles in size, 2 to 3 hours.
In a Field Dutch oven, heat 1 to 2 inches of oil over medium heat to 350°F. While the oil heats, turn the dough out onto a lightly floured surface. Using a floured rolling pin, roll the dough out into a 8-by-10-inch rectangle. Dip a bench scraper or pizza cutter into flour and cut the dough into 2-inch squares, then transfer to a parchment-lined baking sheet.
Working in batches of 6 beignets at a time, fry the dough until puffed and golden brown underneath, 1 to 2 minutes. Flip the beignets over and fry until golden brown on the second side, 1 to 2 minutes longer. Transfer to paper towels and dust generously with confectioner’s sugar. Serve warm.