Preheat oven to 300 degrees F. Beat butter, sugar, eggs and lemon peel in large bowl until well blended. Stir together flour, baking powder and salt; gradually add to lemon mixture, beating until blended. Stir in coconut. Cover; refrigerate dough about 1 hour or until firm enough to handle.
Shape into 1" balls; roll in powdered sugar. Place 2" apart on ungreased cookie sheet.
Bake 15 to 18 minutes or until edges are set. Immediately remove from cookie sheet to wire rack. Cool completely. Store in tightly covered container in cool, dry place.