Preheat the oven to 350°F (180°C). Lightly grease a large baking dish or casserole dish.
In a medium saucepan, melt the butter over medium heat.
Add the diced onion and cook for 3–5 minutes, stirring occasionally, until softened.
Stir in the garlic and thyme and cook for 1 minute, until fragrant.
Sprinkle the flour over the onion mixture and stir continuously for 1 minute, until lightly golden.
Gradually whisk in the milk and cook for 1–2 minutes, stirring constantly until the sauce thickens.
Reduce the heat to low and stir in ½ cup of the shredded Gruyère cheese until melted.
Add the nutmeg (if using) and season with salt and black pepper to taste.
Spread a thin layer of cheese sauce over the bottom of the prepared baking dish.
Arrange a layer of sliced potatoes over the sauce. Spoon or brush additional sauce over the potatoes. Repeat the layers until all the potatoes are used.
Pour any remaining sauce evenly over the top and sprinkle with the remaining 1 cup of Gruyère cheese.
Bake for 45–60 minutes, or until the potatoes are tender when pierced with a knife and the top is golden brown and bubbly.
Let the gratin rest for 10 minutes before serving to allow the sauce to set.