In a medium skillet, fry up 4 slices of diced bacon and set aside.
In a medium saucepan set to medium heat, melt butter. Add flour, dry mustard, paprika and salt. Stir with a wooden spoon for one minute to prevent clumps.
Pour in milk, stir and allow to come to a light boil. Add in shredded cheddar and american cheese.
Wash potatoes well and cut each into 1/4 inch slices.
In a 2 qt oven safe bowl, start to layer the ingredients. Start with shingling the potatoes around the bottom. Salt and pepper the potatoes to taste. Top with half of the sliced onions and bacon. Repeat the process for the top layer.
Slowly and carefully pour the cheese mixture into the bowl. Do not be alarmed if one has a little cheese sauce left over. Refrigerate any left over sauce to be used with another meal.
Cover the bowl with foil and place on a baking sheet. Bake covered for 1 hour and 30 mins. Uncover and bake for an additional 45 minutes.
Remove potatoes from oven. Allow to rest for 20 minutes and serve.