In a saucepan, melt butter over medium heat. Stir in flour, salt, and pepper until smooth. Gradually add milk. Bring to a boil; cook and stir for 2 minutes or until thickened.
In a greased baking dish, layer half of the potatoes, sausage, and onion. Pour half of the sauce over the top. Repeat layers.
Cover and bake for 60 minutes or until potatoes are tender. Let stand for 10 minutes before serving.