01 - Preheat oven to 400°F. Lightly grease a large baking dish with butter or nonstick spray.
02 - In a small bowl, whisk together chili powder, smoked paprika, cumin, garlic powder, onion powder, kosher salt, and black pepper until evenly combined.
03 - Pat chicken breasts dry with paper towels. Season both sides generously with the spice blend, pressing gently to adhere. Arrange seasoned breasts in the prepared baking dish.
04 - In a medium saucepan over medium heat, melt the butter. Sprinkle in cornstarch and stir constantly for 1 minute to form a light roux.
05 - Gradually whisk in the whole milk, stirring constantly to prevent lumps. Continue cooking for 2 to 3 minutes until the mixture thickens slightly and coats the back of a spoon.
06 - Reduce heat to low. Stir in the drained diced tomatoes with green chilies. Add shredded cheddar and Monterey Jack cheese in handfuls, stirring between additions until fully melted and the sauce is silky smooth.
07 - Pour the queso sauce evenly over the seasoned chicken breasts in the baking dish. Bake uncovered for 25 to 30 minutes, until the chicken reaches an internal temperature of 165°F and juices run clear.
08 - Remove from the oven and let rest for 3 to 5 minutes. Top with fresh cilantro, sliced jalapeños, and diced red onion as desired. Serve immediately while hot.