Mix granulated sugar, cornstarch and nutmeg in 3-quart saucepan. Gradually stir in milk. Heat to boiling over medium heat, stirring constantly. Boil and stir 1 minute; remove from heat. Stir in butter and lemon peel. Spread evenly in ungreased square baking dish, 8x8x2 inches. Refrigerate uncovered at least 3 hours until firm.