Preheat oven to 375 degrees. Grease a 24-cup mini muffin pan. In a large bowl, whisk together the flour and baking powder; whisk in the milk and egg. Stir in the mozzarella and pepperoni; let stand for 10 minutes.
Stir the batter and divide among the mini-muffin cups. Bake until puffed and golden, 20 to 25 minutes. (Watch them close)
Microwave the pizza sauce until warmed through, then stir in 1 Tablespoon basil. Sprinkle the puffs with the remaining 1 Tablespoon basil. Serve the puffs with the pizza sauce for dipping.