Whisk the flour, baking powder and salt in a medium bowl. Beat the butter, cream cheese, 1/2 cup granulated sugar and 1 tablespoon lime zest in a large bowl with a mixer on medium speed until light and fluffy, about 3 minutes. Add the lime juice and egg; mix until combined. Reduce the mixer speed to medium low, add the flour mixture and beat until combined.
Place two 12-by-16-inch pieces of parchment paper on a work surface. Divide the dough in half and place each half on a piece of parchment; form each into a rough log. Fold the parchment over the dough; use a ruler to help you roll and press each piece of dough into a 1-by-12-inch straight-sided log. Wrap each log in the parchment and refrigerate until firm, at least 3 hours.
Position racks in the upper and lower thirds of the oven; preheat to 375 degrees F. Line 2 baking sheets with parchment. Combine the remaining 1/3 cup granulated sugar and 1 1/2 teaspoons lime zest and the green sanding sugar on a piece of parchment. Unwrap the logs; roll in the lime sugar to coat. Slice into 1/4-inch-thick squares; arrange 1 inch apart on the prepared baking sheets. Bake, switching the pans halfway through, until the cookies are golden around the edges, about 12 minutes. Let cool 5 minutes on the baking sheets, then transfer to racks to cool completely.
Photograph by Levi Brown
Recipe courtesy of Food Network Magazine