Beat butter, cream cheese, ans sugar until creamy; beat in vanilla and lemon peel. Gradually add flour, blending throughly.
Drop dough by rounded teaspoonfuls onto ungreased baking sheets, spacing cookies about 2 inches apart. Bake in a 325 degree oven for about 12 minutes or until edges are just golden.
Transfer to racks and let cool.
Store airtight, or freeze. Makes 4 dozen.