In a bowl, blend softened cream cheese, powdered sugar, 2 tbsp milk, and 1 tbsp vanilla extract until smooth, then gently fold in 1 cup blueberries.
Layer half the cubed bread evenly in a 10×14-inch baking dish.
Spread the cream cheese and blueberry mixture evenly over the bread layer.
Top with the remaining bread cubes to form a second layer.
In a large bowl, whisk together milk, eggs, 1 tbsp vanilla extract, cinnamon, and nutmeg until fully combined.
Pour the egg mixture over the layered bread, soaking it thoroughly.
Sprinkle the remaining 1 cup blueberries evenly on top.
Cover the dish tightly with aluminum foil and refrigerate for 8 hours or overnight.
Remove the casserole from the refrigerator 30 to 60 minutes before baking.
Preheat the oven to 375°F (190°C).
Bake the casserole covered with foil for 45 minutes.
Remove the foil and bake an additional 30 minutes until the center is set and the top is lightly browned.
Allow the casserole to cool slightly before serving.