Preheat oven to 400*F. Butter a 1 quart casserole dish.
Layer 1/2 of the potatoes into bottom of the prepared casserole dish. Top with the onion slices, and add the remaining potatoes. Season with salt and pepper to taste.
In a medium-size saucepan, melt butter over medium heat. Mix in the flour and salt, and stir constantly with a whisk for one minute. Stir in milk. Cook until mixture has thickened. Stir in cheese all at once, and continue stirring until melted, about 30 to 60 seconds. Pour cheese over the potatoes, and cover the dish with aluminum foil.
Bake 1-1/2 hours in the preheated oven.
MY Notes: I'm constantly asked to make a update version of this recipe. Here's what I do differently that I think makes it bit better. 1. No onion rings. (I think they just get in the way of the potato and cheese flavor) 2. Make extra cheese sauce (I think an extra half recipe of sauce will do it) 3. Put extra cheese in the sauce. (at least an extra half cup, but to your taste) 4. Layer cheese sauce between layers of potatoes. (make sure to grease the pan well or it's hard to get off after baked) 5. Sprinkle bread crumbs on top for extra crispiness. I made two huge pans of this for a party with 30+ people and it all went. Definitely a favorite of mine. I adore all sorts of cuisines—Thai, Middle Eastern, Italian, Spanish, Japanese, you name it—but once in a while a lightly seasoned dish that lets you taste the potato, the cheese, the simple flour-and-milk sauce -- once in a while that simplicity is the pefect complement to your meal. I loved that it was so user friendly and easy to cook in the crock pot. It is a must have to choose side dishes that can cook in a crock at the holidays. Finally, we like our potatoes to be golden brown on top, therefore I removed the foil for the last 15 - 20 minutes of cooking time. This is the same cheese sauce my family uses for homemade mac n cheese, if you use this recipe and pour it over cooked elbow macaroni and add extra shredded cheese on top then bake just a bit to melt, it's the best mac n cheese you've ever had! You could make a double batch and have the mac the next night with baked chicken.