Use an electric mixer to cream together the butter and cream cheese until light and fluffy, about 3 minutes. Scrape the bowl.
Add vanilla and beat for 1 more minute.
With the mixer on low speed, gradually add the confectioners’ sugar. Scrape the bowl, as necessary, to make sure that all of the ingredients are completely combined. Once you’ve added all of the sugar, beat on low for 3 more minutes.
Spread the frosting on the cake; refrigerate for at least 1 hour before slicing and serving.
Notes
This recipe yields enough frosting for the tops and sides of a layer cake with two 8-inch or 9-inch layers. If you just want a thin layer of frosting on top of a 9 x 13-inch sheet cake, you can cut all of the ingredients in half.
Cream cheese frosting is softer and creamier than traditional American buttercream frosting, so it's best suited for spreading on cakes, cupcakes, cookies, graham crackers, and fruit. It is not ideal for piping intricate, detailed decorations.
Sift the confectioners’ sugar to avoid any lumps in your frosting.
Use full-fat block-style cream cheese for the frosting. The cream cheese frosting will be thin and runny if you substitute with low fat cream cheese or cream cheese spread from a tub.
Spread the cream cheese frosting right away (while it's still soft and smooth), and then chill the cake for at least 1 hour (or overnight) before slicing. This is particularly important if you're frosting a layer cake, since the frosting will firm up and "set" when it's cool. This makes the cake easier to cleanly slice.