Fill a deep-sided frying pan with 1 inch of water. Add the pearl onions and bring to a boil over high heat. Reduce heat to medium-low, cover, and cook for at least 15 minutes or until the onions are tender. Remove the onions from the pan. Drain. They should be shiny and translucent.
Melt the butter or margarine in the frying pan. Stir in the sugar. Return the onions back to the pan. Cook on medium heat for about 5 to 7 minutes, until the onions are nicely glazed with the sugar.
Trying to cut down on sugar? Use salt and pepper instead of sugar to fry the caramelized onions.