In a small saucepan, heat water and milk until lukewarm (110F-115F). Pour the mixture into a mixer bowl and sprinkle yeast over it. Let sit for 10 minutes until frothy.
Add butter, egg, sugar, and salt to the milk mixture and stir until combined. Add 3 ¼ cups of flour. Fit your mixer with the dough hook attachment and mix on a low speed (or if you don’t have a mixer, mix by hand) until the dough comes together and pulls away from the sides of the bowl. If the dough is still wet at this point, add more flour – 1-2 tablespoons at a time (up to 3 ½ cups total). The dough should be soft, smooth, elastic, and just slightly sticky. Once it has reached this consistency, keep kneading on low speed in the mixer for 5 minutes, or by hand on a floured surface for 7-8 minutes.
Cover the dough with plastic wrap and let rest in a warm place for 1-2 hours until it doubles in size.
Make the cinnamon-sugar coating: In a medium bowl, mix together cinnamon and sugar. In a separate bowl, place the melted butter. Set aside. Generously butter a 12-cup Bundt pan and set aside.
When the dough has doubled in size, gently punch it to remove air. Pat the dough into an 8-inch square and cut into 64 pieces by using an 8x8 grid. It’s ok if the pieces are slightly different in size. Roll each piece of dough into a ball, then roll into the melted butter and generously in the cinnamon-sugar coating. Place each piece in the Bundt pan and layer. Gently press the top layer to make it even. Cover the pan and let rest to rise for 45-60 minutes.
Preheat oven to 350F/180C.
Bake bread in the preheated oven for about 30 minutes until the top has browned and a skewer inserted into the dough comes out clean. Cool in the pan for 5 minutes, then invert onto a large serving plate.
You can either cut the bread into generous slices like a cake, or pull apart the balls by hand.
Serve warm or reheat before serving.
Monkey bread is best served the same day it’s made.