PREHEAT oven to 375°F. Cook and stir onion in margarine in medium saucepan on medium heat until tender. Add flour; cook and stir 2 min. Gradually add milk, stirring until well blended; cook until mixture thickens and begins to boil, stirring frequently. Remove from heat. Stir in mustard.
LAYER potatoes and mustard sauce alternately in greased 2-qt. baking dish; cover.
BAKE 1 hour. Uncover; sprinkle with cheese. Bake an additional 10 to 15 min. or until cheese is melted and potatoes are tender. Let stand 5 min. before serving.