Au Gratin Potatoes

1/4 cup (1/2 stick) butter or margarine
1/4 cup flour
1 tsp. salt
1/2 tsp. dry mustard
1/4 tsp. pepper
2-1/2 cups milk
1 pkg. (8 oz.) KRAFT Shredded Cheddar Cheese, divided
2 Tbsp. chopped onion
6 cups thinly sliced peeled potatoes (about 6 to 8 medium)



PREHEAT oven to 350°F. Melt butter in medium saucepan on medium heat. Blend in flour, salt, mustard and pepper. Gradually add milk, stirring until well blended; cook until thickened, stirring constantly.
ADD 1-1/2 cups of the cheese and the onion; cook until cheese is melted, stirring frequently. Layer potatoes and cheese sauce alternately in 2-quart casserole dish, ending with a layer of the cheese sauce.
BAKE 1 hour 15 minutes or until potatoes are tender. Sprinkle with the remaining cheese. Bake an additional 5 minutes or until cheese is melted.