In this paper, we have proposed a Čerenkov free-electron laser (CFEL) with metallic side walls, which are used to confine an electromagnetic surface mode supported by a thin dielectric slab placed on top of a conducting surface. This leads to an enhancement in coupling between the optical mode and the co-propagating electron beam, and consequently, performance of the CFEL is improved. We set up coupled Maxwell-Lorentz equations for the system, in analogy with an undulator based conventional FEL, and obtain formulas for the small-signal gain and growth rate. It is shown that small signal gain and growth rate in this configuration are larger compared to the configuration without the side walls. In the nonlinear regime, we solve the coupled Maxwell-Lorentz equations numerically and study the saturation behaviour of the system. It is found that the Čerenkov FEL with side walls saturates quickly, and produces powerful coherent terahertz radiation.