In a large saucepan, saute onion in butter until tender. Stir in flour until blended. Gradually stir in the milk, water, bouillon, salt and pepper. Bring to a boil; cook and stir for 2 minutes or until thickened.
Add zucchini. Simmer, uncovered, for 10 minutes or until zucchini is tender. Stir in cheese until melted.