Heat the milk, nutmeg, and vanilla in a saucepan over medium heat, whisking occasionally to make sure the mixture doesn't burn or stick to the bottom of the pan. When the cream mixture reaches a fast simmer (do not let it boil), turn off the heat and let the flavors infuse for 10 minutes.
In a bowl, whisk together the egg yolks and sugar. In a thin stream, whisk the cream mixture into the egg yolk mixture. Pour the egg-cream mixture back into the saucepan.
Heat over medium heat, stirring constantly with a wooden spoon to 180 degrees F. At 160 degrees F, the mixture will give off a puff of steam. When the mixture reaches 180 degrees it will be thickened and creamy, like eggnog. If you don't have a thermometer, test it by dipping a wooden spoon into the mixture. Run your finger down the back of the spoon. If the stripe remains clear, the mixture is ready; if the edges blur, the mixture is not quite thick enough yet. When it is ready, quickly remove it from the heat and pour it though a fine-meshed strainer into a container in an ice bath to cool. Keep chilled and serve cold.
Recipe courtesy of Gale Gand