Preheat oven to 350*F.
Melt butter in a medium saucepan over medium heat. Saute onion for 2 minutes. Stir in flour and cook 1 minute, stirring constantly. Stir in milk, salt, mustard and pepper; cook, stirring frequently, until mixture boils and thickens.
Meanwhile, bring a pot of lightly salted water to a boil. Add macaroni and cook for 8 to 10 minutes or until al dente; drain.
To the milk mixture add the Cheddar and American cheeses; stir until cheese melts. Combine macaroni and cheese sauce in a 2 quart baking dish; mix well.
Bake in preheated oven for 30 minutes, or until hot and bubbly. Let cool 10 minutes before serving.
My Note: The sauce turned out incredibly well and it baked beautifully. The only thing I may change next time is to cover it for the first half of the cooking, as it got a little dry -- nothing major. The only adjustment I made was to the types of cheeses. We made it with 8 oz white cheddar, 8 oz sharp yellow cheddar, and about 4 oz of mozzarella for smoothness. This blend of cheeses really had a nice bite to it. VERY IMPRESSED! To use Velveeta AND sharp cheddar, made for a perfect combination!
I made this for a group of 32, including the help. I had my doubts about it while making it, but I've got to tell you, the finished product wowed everyone, including myself. Next I'm going to add ham to it, as well as some Italy bread crumb top.