In large nonstick saucepan, combine onions and 1/2 cup water. Bring to a boil. Cover; cook 3 minutes. Drain well. Remove onions from saucepan; set aside.
In same saucepan, combine mushrooms, sherry and tarragon. Cook over medium heat for 7 to 8 minutes or until most of liquid has evaporated.
Remove saucepan from heat; stir in flour until combined. Add milk; stir to blend. Cook over medium heat for 3 to 5 minutes or until slightly thickened, stirring occasionally.
Stir in onions; cook until thoroughly heated. Remove from heat; stir in sour cream. If desired, season to taste with salt and pepper.