Brown ground beef and onion in a Dutch oven over medium heat. For cheese sauce, melt butter in a medium saucepan over medium heat. Whisk in flour and cook for a minute. Slowly whisk in 1 cup of the milk. Season with salt and pepper to taste; cook until thickened, 3 to 4 minutes. Remove from heat and stir in cheese until smooth.
Add taco seasoning, Rotel, chili beans, cheese sauce, and remaining milk into ground beef, stirring well until combined. Bring to a low boil, then to a simmer, and let cook for an hour, stirring occasionally so it will not scorch.
If desired, garnish each serving with crushed tortilla chips, a tablespoon of shredded cheddar cheese, 1 teaspoon sour cream, and a dash of diced jalapeno. Makes 6 to 8 servings.