Creamy cheesy scalloped potatoes

2 pounds potatoes
3 tablespoons butter
3 tablespoons flour
1 teaspoon salt
1/4 teaspoon pepper
2-1/2 cups milk
1 small onion
1 cup cheddar cheese

Prepare potatoes as directed for boiling. Cut into enough thin slices to measure 4 cups. Heat butter in saucepan over low heat until melted. Blend in flour, salt and pepper. Cook over low heat, stirring constantly, until mixture is smooth and bubbly, remove from heat. Stir in milk. Heat to boiling, stirring constantly. Boil and stir one minute. Remove from heat and stir in cheese.
Arrange potatoes in greased two-quart casserole dish in three layers, topping each of the first two layers with half of the onion and one-third of the white sauce. Top with remaining potatoes and sauce. Dot with 1 Tbsp. butter. Cover and cook in a 325-degree oven for 40 minutes. Uncover and cook until potatoes are tender, 60 to 70 minutes longer. Let stand 5 to 10 minutes before serving.