In large pot of boiling salted water, cook pasta according to package directions; drain and return to pot.
Meanwhile, in saucepan, melt butter over medium heat; stir in flour and cook, stirring for 1 minute. Gradually whisk in milk, salt, pepper, mustard, cayenne and nutmeg; cook, whisking, until thickened, 6 to 8 minutes. Remove from heat.
Stir in Cheddar and Parmesan cheeses until melted. Add to drained pasta and toss to coat. Sprinkle with green onion.