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Build a fire in a charcoal grill and let it burn down to medium-low heat.
Meanwhile, wash and dry potatoes. Quarter round red potatoes, if using. Cut any larger fingerling potatoes in half lengthwise, if using. Place a 24-by-18-inch sheet of heavy foil on a flat surface.
Place potatoes and onions on foil. Drizzle with olive oil; sprinkle with salt, chili powder and pepper. Bring up two opposite edges of foil; seal with a double fold. Fold remaining ends to completely enclose the potatoes, leaving space for steam to build. Wrap with a second 24-by-18-inch piece of heavy foil to insulate.
Place foil-wrapped potatoes directly on medium-low coals. Grill about 40 minutes or until potatoes are tender, turning packet halfway through grilling. (Or place packet on a grill rack over medium coals and grill for 45 to 60 minutes or until potatoes are tender, turning packet every 20 minutes.) Serve warm.