In a large skillet, brown the breakfast sausage over medium-high heat, breaking it into crumbles. Remove sausage and set aside, leaving 1 tablespoon of drippings in the pan.
Add diced peppers and onion to the skillet and sauté until softened, about 6-8 minutes. Let vegetables and sausage cool completely.
Spray a 9x13-inch baking dish with cooking spray. Spread the cooled sausage and pepper mixture evenly in the dish.
In a large bowl, whisk together eggs, milk, Italian seasoning, salt, and pepper. Stir in the shredded cheddar cheese.
Pour egg mixture over the sausage and vegetables, cover with foil, and refrigerate overnight.
The next morning, preheat oven to 350°F and let casserole sit at room temperature while oven heats. Bake covered for 30 minutes, then uncover and bake an additional 15 minutes until set and lightly golden.