Cook bacon in 6-quart Dutch oven until browned, for about 3 minutes. With slotted spoon, remove bacon and transfer to paper toweling to drain.
Discard all but 2 tablespoons of the drippings in the Dutch oven. Working in batches, cook chicken in pot until browned on both sides, about 6 minutes. Transfer chicken to plate. Cook onions in pot until golden, about 5 minutes. Transfer to plate with chicken. Cook mushrooms in pot until golden, about 4 minutes.
Return chicken and onions to pot. Add chicken broth, white wine, lemon juice, tarragon, salt and pepper. Bring to boiling. Reduce heat; cover and simmer 40 minutes.
Stir together flour and water in small bowl until smooth. Stir 1 cup chicken cooking liquid into flour mixture until smooth. Stir flour mixture into chicken mixture. Cook until mixture boils and thickens slightly, about 5 minutes.
Arrange chicken on deep, large platter. Spoon vegetables and sauce over chicken. Sprinkle with bacon. Garnish with tarragon if desired. Makes 12 servings.