Nutmeg is best when it's freshly grated. We prefer to use a microplane zester (like one of the ones shown above) to prep nutmeg. (There are all sorts of fine graters available for use with nutmeg; some of them are even designed specifically for that use.)

To prep nutmeg, simply rub the nut over the grater (being careful to keep your fingers away from the grater) into a small bowl. The outer skin is not as flavorful as the oily interior that it protects, but the outside grates easily and is fine to include.