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Preheat oven to 400 degrees F (200 degrees C). Butter a medium 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.