Heat oven to 350°F.
Melt butter in medium saucepan on medium heat. Blend in flour, mustard and pepper; cook and stir 1 min. Gradually add milk, stirring until well blended; cook 3 to 5 min. until thickened, stirring constantly. Add 1-1/2 cups cheese and onions; cook 2 to 3 min. until cheese is melted, stirring frequently.
Layer potatoes and cheese sauce alternately in 2-qt. casserole sprayed with cooking spray, ending with cheese sauce.
Bake 1-1/4 hours or until potatoes are tender. Sprinkle with remaining cheese; bake 5 min. or until melted.