1 (16 ounce) package miniature marshmallows
4 tablespoons water
1 teaspoon vanilla extract
2 pounds confectioners' sugar, divided
Food coloring if desired
Place the marshmallows in a large microwave-safe bowl, and microwave on High for 30 seconds to 1 minute, melting the marshmallows but not scorching them. Carefully put the melted marshmallows into a greased stand mixing bowl. Stir the water and vanilla extract into the hot marshmallows until smooth. Beat in the sugar slowly, one cup at a time, until you have a stiff, sticky dough. Reserve 1 cup of powdered sugar for kneading.
Coat your hands with powdered sugar and begin kneading the sticky dough. As you knead, the dough will become pliable. Dust a working surface with confectioners' sugar and continue kneading until the fondant is smooth and no longer sticky to the touch.
Form a ball with the fondant, wrap tightly in plastic wrap, and refrigerate for 3 hours or overnight. To use, allow the fondant to come to room temperature, and roll it out onto a flat surface dusted with confectioners' sugar. If you plan to use food coloring, incorporate it now by dropping color onto the fondant and using additional kneading.You may also need to add additional confectioners' sugar as the food coloring makes the fondant slightly sticky, especially if you are using liquid food coloring. Fondant should be smooth and shiny looking and able to roll out easily with rolling pin.
After rolling the fondant to desired thickness, lay over your previously frosted cake or cupcakes or actually any other goodies and smooth out any bumps or air bubbles with a spoon or knife.
Wrap any left over fondant in plastic and place in an airtight container. Keeps in the refrigerator for up to 2 weeks!