Preheat your oven to 350°F. While it heats, peel and slice the potatoes into 1/8 to 1/4 inch thick rounds—uniform thickness ensures even cooking. Place the sliced potatoes immediately into a bowl of cold water to prevent oxidation and remove excess starch, which helps them cook more evenly. Finely dice the onions into 1/4-inch pieces and shred both the Colby Jack and mild cheddar cheeses using a box grater or food processor; freshly shredded cheese melts much more smoothly than pre-shredded varieties. Grease a 9x13 inch baking dish lightly with butter or oil, and gather all remaining ingredients and equipment so everything is ready for assembly.

In a large saucepan, melt the butter over medium heat, then add the diced onions and cook for 2-3 minutes until softened and fragrant. Add the bacon bits and stir to combine. Sprinkle the flour over the mixture and stir constantly for 1-2 minutes to create a roux, cooking out the raw flour taste while building a slight golden color. Gradually whisk in the milk and condensed mushroom soup, stirring constantly to prevent lumps from forming. Once the mixture is smooth and begins to simmer gently, add the celery seeds, garlic powder, salt, pepper, and smoked paprika, stirring to distribute the spices evenly. Remove from heat and stir in the sour cream—I like to do this off the heat to keep the sauce silky smooth without any risk of curdling.

Drain the soaked potatoes thoroughly and pat them dry with a kitchen towel—removing excess moisture helps them brown slightly and prevents a watery final dish. Begin layering in the prepared baking dish: spread 1/3 of the dried potatoes in an even layer on the bottom. Pour 1/2 cup of the shredded cheese blend over the potatoes, then add half of the creamy mushroom sauce from Step 2, spreading it evenly. Add the next 1/3 of potatoes in another layer, followed by 1/2 cup of cheese. Top with the remaining mushroom sauce, then finish with the final 1/3 of potatoes. Sprinkle the remaining 1/2 cup of cheese over the top—this creates a golden, crusty cheese layer on top while keeping the interior creamy.

Place the assembled casserole in the preheated 350°F oven and bake for 50-60 minutes until the potatoes are completely tender when pierced with a fork and the top is golden brown. The exact time depends on how thick you sliced the potatoes and your oven's characteristics. About halfway through baking, I like to check that the sauce is bubbling around the edges—this indicates the potatoes are cooking properly. If the top cheese is browning too quickly before the potatoes are done, loosely tent the dish with foil for the remaining time.