Peel and cut your onion around the core. Then, slice your onion into thin strips. If you want your dip to have smaller pieces of onion, you can opt to dice the onion instead.
1 large yellow onion
Add the onions and butter to a large frying pan over medium-high heat, stirring to coat the onions as the butter melts. Then, spread the onions out in a single layer on the pan and allow them to cook in the butter for 5-7 minutes without touching, so that there is some browning on the onions and the pan.
2 tablespoons unsalted butter
Then, add the water and stir with a wooden spoon, scraping any browned butter on the bottom of the pan and stirring to distribute the browning color.
3 tablespoons water
Continue to heat, stirring occasionally until the water cooks off. Add more water if needed, continuing to stir and cook until the onions are tender and a deep caramel color. Remove from heat and set aside.
In a mixing bowl or serving bowl, whisk together the cream cheese, sour cream, salt, onion powder, and black pepper until smooth.
½ teaspoon salt, ½ teaspoon black pepper, ½ teaspoon onion powder, 4 ounces cream cheese at room temperature
Fold in the caramelized onions and serve at room temperature with chips. Enjoy!